The New Year can always be relied upon to provide newspapers with a steady flow of stories they write every damn year, pausing only to change some of the figures.
And so it is on the first Tuesday of 2016 we are presented with “Fat Cat Tuesday”, the amusingly named creation of the think tank-cum-lobby group High Pay Centre that points out that top chief executives still make a lot more money than you.
How much more? Well, the press release from said lobby group argues that “by the end of the first Tuesday in 2016, Britain’s top bosses will have made more money in 2016 than the average UK worker earns in an entire year”.
To come to this conclusion the group made some “calculations”, taking the median UK full-time salary of £27,645 and asking how long it would take someone to match it if they were paid the mean salary for a chief executive working in a FTSE 100 company – about £5m a year – at an hourly rate with twelve hour days and little time off.
Some have quibbled whether “mean” and “median” measures can be compared. Whilst it’s unclear where the High Pay Centre’s median salary comes from, it’s close to the Office for National Statistic’s (ONS) estimate for April 2015, the end of the fiscal year, and a few minutes of googling didn’t turn up any better stats.
Anyway, the point is that there is a large disparity between what the plebs and the lords are paid, and that many have an intuitive feeling that one person being paid multiples of another is unfair, or that inequality is simply “too high”.
The question is: what exactly do they mean by this?
On one level people seem to believe that pay is a measure of moral worth, and thus paying someone a pittance is an insult not merely to their bank balance, but to their esteem.
Given the universally-recognised importance of accumulating shiny things and the inherent “dignity” – one should use the term advisedly – associated with being able to pay one’s way, it’s hard to completely discount this view.
Another complaint concerns the usefulness of a person’s chosen vocation, which fuels the idea that footballers are paid far too much considering all they do is kick a synthetic pig’s bladder round a field all day.
High Pay Centre even make use of this trope by cunningly comparing an imaginary “experienced nurse in one of Britain’s busiest hospitals” with the nebulously-skilled “boss of one of Britain’s biggest companies” in a propaganda video released in 2014.
This is accompanied with the misleading notion that “what we’re paid rewards skill, training and experience”.
To some degree this is true, but what we’re paid also relies on supply and demand.
Lionel Messi, a footballer considered by some to be the world’s best, may be skilled, trained and experienced, but the reason he is paid £26m a year is because he is a scarce resource – there are only a handful of footballers as good as him, and only a handful with a profile capable of drawing crowds and boosting merchandise sales.
Whether this logic applies to top businessmen, whose skills are far less tangible than that of footballers or nurses, is harder to say.
For some like Sam Bowman, executive director of the Adam Smith Institute, a free market think tank-cum-lobby group, executives do justify their paychecks:
“Chief executives can be worth quite a lot to firms, as is shown by huge moves in company share prices when good CEOs are hired, or bad CEOs are fired. [Apple’s] Steve Jobs can make a firm; [Microsoft’s] Steve Ballmer can break a firm.”
For others the link between executive pay and performance is more tenuous, and companies are being ripped-off by executives due to their shoddy recruitment practices and poor incentive structures.
Others have argued that irrespective of the business case for high executive pay the effects on the economy leave much to be desired. A report from the OECD, a rich-country club, claimed inequality damaged the acquisition of skills among poorer members of society.
All of which is saying this is a heinously complicated argument mixing morality, economics and political grandstanding – and perhaps is best left to lengthy study rather than glib New Year’s puffs.
Image Credit – Kitten Looking Up, August 2012 by Belal Khan