Senior executives pocket 4,000% pay rises

THE pay of top executives has soared by more than 4,000 per cent in the past 30 years, undermining productivity and “damaging” trust in British business, a year-long inquiry by the High Pay Commission has revealed.

The report criticised “stratospheric” pay increases, which have seen wealth flow upwards to the top 0.1 per cent of people in the UK.

The study detailed the pay of former Barclays chief executive John Varley who, it said, earned £4,365,636 – 169 times more than the average worker in Britain today and an increase of 4,899.4 per cent since 1980, when the top pay in Barclays was just 13 times the UK average.

The chief executive in the part-state-owned Lloyds Bank has seen his pay increase by 3,141.6 per cent to £2,572,000 over the same period – 75 times the average Lloyds employee – when in 1980 it was just 13.6 times that of the average Lloyds worker, said the report. Average wages today are a “modest” £25,900 – up from £6,474 in 1980 – a threefold increase.

The commission called for a number of reforms, including a “radical simplification” of executive pay, putting employees on remuneration committees, publishing the top ten executive pay packages more widely, forcing companies to publish a pay ratio between the highest-paid executive and the company median, and making firms reveal the total pay figure earned by executives.

The commission also said a new national body to monitor high pay should be established.

The report, Cheques With Balances: Why Tackling High Pay Is In The National Interest, showed that decisions to award huge pay packages are set by a “closed shop”, shrouded in highly complex detail, effectively hidden from shareholders, staff and the public.

“Stratospheric increases in pay are damaging the UK economy – distorting markets, draining talent from key sectors and rewarding failure,” the report said.

“There appears to be little truth in the myth that pay must escalate to halt a talent drain in executives. The growing pay gap between the top 0.1 per cent and everyone else is increasing public disillusionment, damaging trust and fuelling the view that business leaders are in it for themselves.”

High Pay Commission chairman Deborah Hargreaves said: “There’s a crisis at the top of British business and it is deeply corrosive to our economy. When pay for senior executives is set behind closed doors, does not reflect company success and is fuelling massive inequality, it represents a deep malaise at the very top of our society.

“The British people believe in fairness and, at a time of unparalleled austerity, one tiny section of society – the top 0.1 per cent – continues to enjoy huge annual increases in pay awards.

“Everyone, including each of the main political parties, recognises there is a need to tackle top pay. That’s why we are saying there must be an end to the ‘closed shop’ that sets top pay and that pay packages should be clear, open and published to shareholders and the public.”

Meanwhile, a poll of more than 2,000 members of the public found that four out of five believed pay and bonuses for top executives were out of control.

Two-thirds did not think companies could be trusted to set pay and bonuses responsibly and most wanted government action to make firms more transparent about the way in which they award executive pay.

TUC general secretary Brendan Barber said: “Top directors seem to think that austerity is just for the little people.

“This is not just unfair, but bad for the economy.

“Many of the report’s recommendations – from allowing ordinary workers on to remuneration committees to give executives a much-needed dose of economic reality, to forcing companies to publish pay ratios between top directors and ordinary staff – can and should be implemented straight away.

“The truth is that the extraordinary transfer of wealth from ordinary people to those at the top is not just morally repulsive, but a key ingredient in the economic crash.”

Business Secretary Vince Cable said: “In the last decade we have seen extreme increases in top executive pay which appear to be completely unrelated to the performance of companies.

“There is widespread consensus, not just among the public but in the business community, that this is unacceptable and is undermining the credibility of our markets-based system.

“What I’m working towards is responsible capitalism, where rewards are properly aligned with performance.

“I have no problem with people being well-paid if they deliver on their job, but people should not receive rewards for failure, particularly when other staff are being laid off or seeing below-inflation pay rises.”