I realise this is a delicate area, with all sorts of scope for unintended consequences.
One issue seems to me to be that among those who reach a certain level where they can directly or indirectly influence their own pay, the tendency is always to “round up”, thereby steadily, even if unconsciously, widening the gap between such people and the rest of society. Covid should have taught us that we sink or swim together! In companies and even in charities, justification for board rewards is usually along the lines of comparison with some related group of businesses, but the evidence of the past 50 years is that these comparisons are an attempt to claim a fig-leaf of respectability for a process which has undeniably resulted in a heavily inflationary spiral.
I am sure that some would love to legislate income limits, but I am not sure that is the answer. I am not proposing that good people should go unrewarded – I know from personal experience the difference a good CEO can make – but rather providing a basis to revise down the (ever-increasing) perception of what is an appropriate reward for those at the top.
The meat of this proposal is to assess and account for how much is taken from the many by the few. It should be possible to set a reasonable top level of “remuneration” (including all such things as share options, benefits in kind, pension etc. etc., while allowing, for example, for professionally necessary fees such as the insurance paid by doctors.) This should be considered appropriate for those who have reached the top of their particular tree – for example the prime minister’s salary (adjusted as required for any part-time work). Then, a bit like VAT, account for all the “remuneration” above that level, not only directly within a company and but also indirectly, in terms of bought-in goods and services. This could be quite wide ranging – for example employing a barrister at £1000/hour would contribute (say) £630 to the total for every hour he or she bills. Buying (e.g. MIcrosoft) products from firms with similar large rewards could also contribute to the total. This should include somehow the actual benefit from share options cashed, as well as a notional value when they are allocated.
That information on “excess remuneration” can then be used in a number of ways:
1) (possibly unique to the UK) taken into account in the award of any honours;
2) as an adjustment to the law of limited liability, so that those who take such remuneration share any risk borne by the company for their actions – here I am thinking of executives who sail as close to the limits of the law as they can, then sail off into the sunset leaving employees, company, shareholders or country to carry the can/pay the fines/… (This should be set up without territorial limits as far as possible – would be a good opportunity for European collaboration…)
3) publicity – the total “excess remuneration” awarded by a company should make its way into annual reports and be accumulated by investment institutions (adding in the fund managers’ rewards) which do not vote against the remuneration reports. The total should be a required part (and not just in small print) of any advertisement/discussion of/advice on those funds.
4) require any funds to seek annual binding approval for any increase in the total “excess remuneration”, thus restoring some measure of control to those who in theory own the assets – the aim is to focus the minds of the fund managers on what they are approving.
5) related would be to encourage a move away from share options, which have manifestly failed as a way of “aligning executives interests with those of shareholders” to something genuinely long term and related to employee career success (so redundancies will affect the executives’ pockets), any employee pension fund and total shareholder return. I have thought less about this, but a first step here might be a gradual reduction in the limits on share option allocation.
6) another related idea would be to refresh and strengthen the old laws on embezzlement explicitly to cover all possible ways of extracting money from a company, even those not yet thought of.
A standard response to this concern is that executive remuneration is the responsibility of shareholders, but that seems to have had little effect – company ownership is diffused through a myriad of intermediaries, so that those able to vote are largely fund managers, who I submit have a vested interest in not rocking the boat, or private individuals, few of whom have time and patience to plough their way to the meat of the “remuneration report”. Further, it has become common for companies to put on their voting papers a shortcut option to approve everything proposed by the board, thereby adding to the tendency to nod through inflationary increases. I suggest that remuneration should not be allowed to be included in such “catch-all” boxes, and further that the requirements on the wording of the corresponding resolution should be tightened to ensure that the motion itself names names: “to approve an aggregate increase of x% in excess remuneration” (where x% is required to include all options, incentives etc.) rather than the vanilla wording currently typical.
We need a thorough change of culture among those “at the top” in society, so that the goal becomes not to take as much as possible but rather to be reasonably rewarded for doing a good job. Led from the top, we might then end up with a society which works for the many as well as the few.
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