On the soaring pay of chief executives

The average FTSE 100 chief executive earned £4.9m last year, almost 200 times the average wage, according to research group Incomes Data Services, with the gains largely due to sharp rises in bonuses and performance-related pay.

Err, yes.

Profits are up, share prices are up. What do you think should happen to the wages of people hired to increase profits and share prices?

10 thoughts on “On the soaring pay of chief executives”

  1. They suffered and scraped by in the lean years, let them have bonuses so they can put food on the table in the fat years. I for one salute their tireless, thankless work.

  2. And they can work anywhere in the world. To work out where they should work they will assess net pay. If their expected tax rate goes up (and it has) they will need an increase in gross pay to stay in the UK. I look forward to the lefties applauding this, as the result will be a large increase in the executive’s income tax contributions to the UK economy.

  3. What do you think should happen to the wages of people hired to increase profits and share prices?

    You are assuming here that the increase in profits and share price was due to the specific actions of the chief executive, and not due to the efforts of smarter engineers, better sales and marketing campaigns, more helpful customer support staff, or even those strange, external market forces that the chief executives like to blame when the profits and share prices go down.

  4. “they can work anywhere in the world”

    They speak all languages and can manage companies remotely via super powers. Give these guys a damn raise already!!

  5. Well, I’d say they were more deserved if they had taken equivalent cuts when profits dropped and share prices fell. But they didn’t did they. They took obscenely large incomes home even when the shares were in the toilet. So, no, I think that with rare exceptions, most of them deserve almost none of their salaries. A bad CEO can ruin a company, but most are barely competent at that level and make no real difference at all. There are a few who do, but it can be hard except in retrospect to see who they might be.

    Way overpaid, most would only get another job offer through the “old boys club”.

  6. Ed, “most of them deserve almost none of their salaries”, and “most are barely competent at that level”. Evidence please.

  7. To the 2 Eds: If it’s so damn easy, why don’t you go out and do it?

    Why does the communist fallacy, that executives are useless and overpaid in private business, but vital and underpaid in government, constantly infect the human brain? All of the “smarter engineers, better sales and marketing campaigns, more helpful customer support staff” are utterly useless until some smart lad or lassie comes in and gets them going together.

    I repeat, if it’s all so damn easy, why don’t you lot go out and do it and get your own 4.9 mil per year?

    The ability to put together, or continue, a large group of people to actually produce, sell and get the money for a product or service in large volume at a profitable cost is a rare thing. A much more rare thing than the ability to get an advanced degree.

  8. Fred Z, I completely agree that it is difficult to run a company, and I don’t claim to be able to do it. I find it hard enough to run a group of 20 within a company. I would note the following:
    * I am not a communist, and I think all my comments can be applied to the public sector as well as private businesses.
    * Most CEO’s are not company founders. They are often outsiders who only stay in the job for a few years. Thus they are not responsible for getting all of the rest of the staff to work together and inertia is often more responsible for teams staying together during their term than any specific action on their part.
    * Any business that relies upon an uber-talented boss to decide, organise and run everything is not going to scale well and will be very vulnerable to anything happening to that boss. Decision making should be distributed and employees should be motivated by more than the latest inspiring memo from head office, like, for example, actually enjoying the work they do and wanting to help the customers they deal with. If anything, a good boss should try to hire people smarter than he or she is, so the best people in the company aren’t wasted on the many humdrum admin chores a CEO has to do.
    * Company bosses are increasingly running companies in their own interests, not in the long term interests of shareholders. John Bogle has written a lot about this.
    * People should be paid the appropriate salary for the work they do, determined of course by the market not some committee of the great and the good. However, I don’t believe the market in setting CEO pay is working efficiently at the moment – the incentives are wrong and the shareholders have abdicated their responsibilities to hold management and directors to account.
    * As both the other Ed and I said, CEOs, like politicians and fund managers, are rather fond of taking credit for success but blaming others (e.g. “the market”) for failures. This may be true in specific cases, but cannot be true generally. Either the CEO’s actions are pivotal in the success of the business or they are not. If they are, the CEO should share the pain of failure, perhaps by making any bonuses or profit sharing symmetric (i.e. loss sharing). If they are not, the CEO should get a more modest salary all the time.

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