From the TUC

Executive Pay – Mind the Gap!

12 Nov 2012, by in Economics

Despite the so-called ‘shareholder spring’ and an increased focus on executive pay from both media and government, the gap between the pay of UK company directors and the rest of the UK’s workforce has continued to grow. Figures from IDS last week showed that total earnings for FTSE 100 directors grew by 10% at the median last year and by an average (mean) of 27%. Average earnings across the economy as a whole rose by just 1.7%.

Part of the problem is that while it is hard to find anyone who does not agree that something is wrong with executive pay, there are very different perceptions of what the problem actually is. There is a powerful argument promoted by business representatives in particular, and also to some extent by successive governments and investors, that it does not matter how high executive pay is so long as it is linked to performance. According to this view, the key problem with executive pay is that it has continued to rise in the face of poor company performance.

This is not how the TUC sees it. In our view, the key problem is that executive pay is simply too high, both in relation to pay for ordinary employees in the same company and in relation to awards across the economy as a whole. We believe that current levels of executive pay over-reward those at the top of organisations too much in relation to those at the middle and bottom.

The gap between directors’ pay and that of the rest of the workforce has been of concern to unions for years, but in the past this issue was neglected by many participants in the debate. However, the tide is starting to turn. Sir Richard Lambert, former head of the CBI, warned in 2010 that company leaders risked being treated as ‘aliens’ if they seemed to occupy a different galaxy from the rest of the population. And a Financial Times journalist wrote last week that “The fact that directors’ pay has risen so much faster than other salaries in recent years is baffling”, adding that “It matters that directors’ pay is so out of whack with that of their staff.”

This Thursday 15th November, 2pm – 4pm – the TUC is holding a seminar Short-term rewards, long-term failings which will focus on why the gap between the pay of company directors and other workers has continued to rise, whether and why this matters and what can be done about it. Speaking at it are Liberal Democrat peer Lord Matthew Oakeshott, leading investor David Pitt-Watson, Simon Walker from the Institute of Directors and Frances O’Grady, TUC General Secretary Designate. Alan MacDougall, Managing Director at Pensions Investment Research Consultants, will chair the event. It’s free to attend, and all are welcome. If you would like to come along, you can register here.