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?