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Reduce CEO pay or raise average workers' pay?

Victoria Dmochowski

The BBC's Business Editor discusses gender pay gaps and upcoming reporting on pay gaps between CEOs and the average worker: http://www.bbc.co.uk/news/business-43793356

Are you preparing to report on CEO pay? Any thoughts on how the playing field might be leveled out a bit? 

"On pay, the most effective anchor on executive compensation may yet be the forced publication from June of this year of CEO pay compared to the average worker.

This ratio may produce some odd results - for example, Goldman Sachs will have a lower ratio than Tesco thanks to the fact that the average Goldman worker is paid a heck of a lot of money.

However, once published, companies will be loathe to be seen to let it go in the wrong direction. That leaves two choices - reduce CEO pay or raise that of average workers. Both - or either - politically acceptable outcomes." - Simon Jack, BBC Business Editor

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  • The thinking here is all about face, in any case.

    As a general rule, an employer seeks to pay an employee the least amount possible to obtain the required skill-set, motivate the provision of that skill-set profitably and retain the employee for a period long enough to deliver a comfortable return on investment. This tends to be what is meant be "the going rate".

    If I can get the productivity I'm looking for for £17k, then why would I pay £20k for the same productivity?

    This principle applies in general terms to 99% of any given workforce but, for some reason, when we get to CEO compensation, larger companies seem to lose their minds. Instead of seeking to pay the going rate, they seem to compete to bag the biggest trophy-leader available, like a rich American dentist looking to put a lion-skin rug on his hearth, they are prepared to pay any sum to bring down their chosen prey.

    Similarly, those business leaders who find themselves in this lofty position, compete for the largest trophy salary and no-strings reward package. This results in sums changing hands on a footballer scale and more, totally disproportionate to the value of the skills on offer or the productivity being returned to the organization but purely as some kind of bizarre marketing strategy, posing with their new trophy like they just landed a 2000-pound Marlin (yes, I Googled "how heavy is a marlin?").

    Money is nice, of course is it. But beyond a certain point it ceases to be income and just becomes a childish way of keeping score.

    It's not about the ratio of the average worker's wage to the CEO's. It's just about whether CEOs are being compensated in a rational way for their value to the company. And, at the moment, companies in the FTSE400 and their ilk seem largely to have leapt headlong into irrationality.
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  • The thinking here is all about face, in any case.

    As a general rule, an employer seeks to pay an employee the least amount possible to obtain the required skill-set, motivate the provision of that skill-set profitably and retain the employee for a period long enough to deliver a comfortable return on investment. This tends to be what is meant be "the going rate".

    If I can get the productivity I'm looking for for £17k, then why would I pay £20k for the same productivity?

    This principle applies in general terms to 99% of any given workforce but, for some reason, when we get to CEO compensation, larger companies seem to lose their minds. Instead of seeking to pay the going rate, they seem to compete to bag the biggest trophy-leader available, like a rich American dentist looking to put a lion-skin rug on his hearth, they are prepared to pay any sum to bring down their chosen prey.

    Similarly, those business leaders who find themselves in this lofty position, compete for the largest trophy salary and no-strings reward package. This results in sums changing hands on a footballer scale and more, totally disproportionate to the value of the skills on offer or the productivity being returned to the organization but purely as some kind of bizarre marketing strategy, posing with their new trophy like they just landed a 2000-pound Marlin (yes, I Googled "how heavy is a marlin?").

    Money is nice, of course is it. But beyond a certain point it ceases to be income and just becomes a childish way of keeping score.

    It's not about the ratio of the average worker's wage to the CEO's. It's just about whether CEOs are being compensated in a rational way for their value to the company. And, at the moment, companies in the FTSE400 and their ilk seem largely to have leapt headlong into irrationality.
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  • in reply to Robey
    What annoys me is when you have someone like Jes Staley of Barclays, behaving completely inappropriately - and something people in more junior managerial roles would almost certainly lose their job over - yet his punishment is that his bonus for 2016 is reduced by £500,000. Yes, he got fined the equivalent of 10% of his salary (which was a reduction for paying early! Ridiculous in itself) but this is a man who earned £4.2M that year and no doubt has earned even more since, and no doubt was earning 7 figures for many years previously.

    Is that really a punishment? How hard is that really hitting him? And more to the point when someone can lose over £1 million in earnings and still be extremely wealthy, you have to wonder is this person THAT much better, does he add THAT much more value to the company, than people earning more routine salaries? I find it hard to believe.