Executive pay damages trust and is corrosive to economy, says report

by - 22nd November 2011, 7.31 BST

Executive pay is “corrosive” to the economy, according to a report released today.

A year-long inquiry by the High Pay Commission has revealed that the pay of top executives had soared by more than 4,000% in the last 30 years, undermining productivity and “damaging” trust in British business. The report criticised “stratospheric” pay increases which have seen wealth flow upwards to the top 0.1% of people in the UK..

Average wages in the UK now are a “modest” £25,900 – up from £6,474 in 1980 – a three-fold increase.

The commission called for a number of reforms, including a “radical simplification” of executive pay, putting employees on remuneration committees, publishing the top 10 executive pay packages more widely, forcing companies to publish a pay ratio between the highest paid executive and the company median, and making firms reveal the total pay figure earned by executives.

The commission also said a new national body to monitor high pay should be established.

The report, Cheques With Balances: Why Tackling High Pay Is In The National Interest, showed that decisions to award huge pay packages are set by a “closed shop”, shrouded in highly complex detail, effectively hidden from shareholders, staff and the public.

High Pay Commission chairman Deborah Hargreaves said: “There’s a crisis at the top of British business and it is deeply corrosive to our economy. When pay for senior executives is set behind closed doors, does not reflect company success and is fuelling massive inequality, it represents a deep malaise at the very top of our society.

“The British people believe in fairness and, at a time of unparalleled austerity, one tiny section of society – the top 0.1% – continues to enjoy huge annual increases in pay awards. Everyone, including each of the main political parties, recognises there is a need to tackle top pay.”

A poll of more than 2,000 members of the public to mark publication of the report found that four out of five believed pay and bonuses for top executives were out of control. Two-thirds did not think companies could be trusted to set pay and bonuses responsibly and most wanted Government action to make firms more transparent about the way in which they award executive pay.

TUC general secretary Brendan Barber said: “Many of the report’s recommendations – from allowing ordinary workers on to remuneration committees to give executives a much-needed dose of economic reality, to forcing companies to publish pay ratios between top directors and ordinary staff – can and should be implemented straight away.”

Unite general secretary Len McCluskey said: ‘Unite agrees with the report’s conclusions that this enormous disparity is corrosive to the economy and we call on ministers to implement the report’s 12 recommendations as a matter of urgency.

‘This obscene pay levels enjoyed by the very few at the top also has a wider corrosive effect on society as a whole, widening social and economic inequalities. What is particularly galling is that some of these executives are presiding over organisations that aren’t performing well in the first place.

‘Institutional shareholders need to exercise much greater scrutiny and control of directors’ pay and bonuses – and if this report’s recommendations were implemented, this would greatly assist this process. There needs to be much greater transparency.’