Thursday, 26 February 2015

The richest decide the pay of the richest

There is a great bit of research out today from the TUC on the pay of FTSE100 remuneration committee members. It won't be any surprise to most people that the executives of FTSE100 companies are amongst the richest in the UK and indeed the world. But what hasn't been looked at before is how much those that set their pay - the members of FTSE100 remuneration committees - take home.

According to the TUC the average total pay of a FTSE100 rem comm member is £441,383, and this is probably a conservative estimate. That is more than 16 times full-time average earnings. This seems likely to have an influence on rem comm decision-making. If an individual is earning £441k themselves, deciding to increase an executive's salary by £27,000 (if they are on, say, £500,000) probably looks uncontroversial. To someone on £27,000 a year it it will look incredible.

The cognitive bias of anchoring may be relevant here. This seems to have a pretty strong effect even when the information is irrelevant. But what about when the first available info (the rem comm member's own earnings) is directly relevant? If rem comms are composed primarily or solely of those with very earnings themselves, should we really be surprised if they make decisions that those on more modest earnings find indefensible? It ties in quite well with the current political row over MPs with outside earnings. I suspect people like Malcolm Rifkind seem otherworldly when the complain about having to scrape by on £67,000.

Needless to say, I completely agree with the TUC that this strengthens the case for worker representation on remuneration committees, and that this needs to be more than a single rep. Again thinking about the psychology of decision-making, it's going to be easier for people to challenge the super-rich consensus if they aren't a lone voice.

Finally, the TUC also has a list  in the report of the current highest-paid rem comms in the FTSE100. Probably worth keeping an eye on that group to see if they make any particularly bad decisions. Note that Burberry is the second highest paid rem comm in the list.

1 comment:

Edward said...

Yes, I think what is happening is the Non-Executive positions that were brought in to deal with some of these issues are just being filled with cronies or bribed with ridiculous salaries. And now in a similar vein to the challenges faced by the government when trying to recruit a truly independent chair into the new inquiry set up to look at sexual abuse allegations, it is almost impossible to get Non-executives who are truly independent and bring in a degree of scrutiny that the person on street would expect. I am sickened by the extreme salaries that we see in business. To me it is indicative of society truly loosing its grip on its concept value. What is also interesting is the degree to which our public social reality is being artificially propped up/consciously interfered with in order to take the public's eye away from the issue and prolong this destructive trend.