My word, my word

It should come as no surprise to anyone that UK chief excutive pay has risen by 11% in the last year. This, of course, vastly outstrips the rate of increase for almost anyone else. It is also wholly unrelated to any real-world performance, except growth in share prices.

The company is run for the benefit of the shareholders. This seems like a reasonable connection for pay to make therefore.

But let’s be clear. Many of these chief executives help rig share prices through their share buyback schemes that are intended to keep shares in short supply, and so prices high. This makes the CEOs look good. And it increases the value of the CEO’s share options. They have every incentive to play this game.

Bit behind the times there, CEOs tend not to get paid in share options but in restricted stock. Nothing like being up to date, is there?

And despite protests, there is no reason for them not to do so. Shareholders still cannot constrain pay. There is no maximum pay law. Whatever is paid to a CEO is considered a legitimate tax-deductible expense in the accounts of the company that pays it. And the pension industry – stacked full, as it is, by sycophants who want to ‘make it in the City’ – by and large never says boo to a goose.

So what is happening? Rent extraction is happening. These CEOs do not earn their reward. Nothing says they are worth the sums paid. They are paid this much because they can take this much. And this is what economuc rent is. It is the amount paid for a resource in excess of that needed to secure its use in a process.

All of which rather fails. Private equity doesn’t suffer from any of those power or institutional problems. And yet they pay CEOs more than public companies do.

And yes, that makes me angry.

Ignorance should make us all angry, no?

10 comments on “My word, my word

  1. “Shareholders still cannot constrain pay”

    Doesn’t directors’ pay still have to be voted on at the AGM? Shareholders can restrain pay, but generally choose not to do so.

    Which, for Murphy, is the whole problem with democracy – not everyone agrees with Murphy.

  2. Quite, Richard. If that stupid cvnt was a CEO of any company I’d shares in he’d learn about shareholder power. When his salary was reduced to zero & his arse kicked down the road.
    Although a change in the law to allow hanging, drawing & quartering of useless company officers to be permissible disciplinary procedure would be welcome.

  3. Maximum pay law? So, after those first five books PTerry should have written the next 50 for free?

    Or, to bring it down to his level, after teaching those first two lectures, he should teach for free for the rest of the month?

  4. Spudboy’s problem is that he hears about something, gets angry about it, then writes a story that justifies his anger.

    Sadly, the story never bears any resemblance to the facts.

  5. No wonder he’s angry.

    All those CEOs earning huge amounts of money.

    Some of them a decade or more younger than he is.

    All able to retire in comfort while he runs his little fat legs round and round still having to whore himself out to anyone stupid enough to pay him.

    Yes, jealousy can make you very angry.

  6. Not wholly fair AndyC.

    Murphy was SENIOR partner in an accountancy firm.

    [A firm with three partners]

    And CEO of a multi-national business

    [Importing Trivial Pursuit into the UK from ireland]

    His business credentials are, candidly, IMPECCABLE

  7. Nah.

    He wasn’t CEO and it wasn’t a MNC. Tracked it down once. Interview with the founder. Just a company that had a licence. Oddly no mention of spud.

  8. ‘It should come as no surprise to anyone that UK chief excutive pay has risen by 11% in the last year.’

    I’m surprised.

    ‘This, of course, vastly outstrips the rate of increase for almost anyone else.’

    And . . . ?

    ‘It is also wholly unrelated to any real-world performance, except growth in share prices.’

    Well there’s your real-world performance right there! How could he miss it?

    ‘Whatever is paid to a CEO is considered a legitimate tax-deductible expense in the accounts of the company that pays it.’

    Business expenses are deductible. Outrageous.

    ‘These CEOs do not earn their reward. Nothing says they are worth the sums paid.’

    Except the companies that pay them. An Ely accountant should determine what companies should pay their people?

    It’s difficult to understand how someone so completely devoid of intellect is so in the public eye. Tim Worstall, you are wise to keep him on the grill.

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