I watched the recent story about Executive Pay levels with interest. It’s always a slightly inflammatory story, but the current economic context of public sector cuts, pay freezes, redundancies and a more general story of economic doom, make stories of anyone doing well seem incendiary.
The rights and wrongs of the report and the use of Mean and Median analysis have been much discussed. This story felt to me like an opportunity for a media feeling aggrieved on the part of the general population to target someone to blame. When everyone is struggling, not sure whether to blame government, bankers, economists or whomever, it is a popular message to sell that it doesn’t seem right when individually we feel that we didn’t contribute to economic difficulties that we should have to pay. When Government is promoting a message of shared pain, that there should be any group of people doing economically well seems wrong.
Getting away from the blame game, there are some important, if unpalatable truths about Executive pay to note. The road to recovery is dependent upon our ability to create growth and the people who hold these jobs are the entrepreneurs, the growth creators.
To “ordinary” jobbing folk the reward packages may seem excessive but let’s just think for a moment about the risk reward bargain that these people make. Often having made significant personal sacrifices with regard to home and family, personally invested into companies in terms of personal money, time and reputation, the risks can be great indeed. Should the company fail then the personal losses are great, conversely so should the rewards in a success story. The reward packages are targeted in a way that many people would find abhorrent to the concept of a fair days pay for a fair days work, frankly too difficult and not worth the pain. Shouldn’t then the pay off be different for people who are prepared to work in a way that the vast majority are not?
The people who do occupy these roles, do make this risk reward bargain and have these packages are there because they think “I can do this.” Their packages are often targeted in an all or nothing manner, or based on an escalator, where rewards are commensurate only with achievement. The amounts quoted in the media last week (aside from the debate about the appropriate use of Mean and Median) are about overall package value, but only if the results are achieved! If the objectives are not met, the money is not real, bonuses are not paid out, and shares are worth only whatever the market says they are worth.
Logic tells me that if results are delivered, risks pay off then we all benefit, companies continue to trade, jobs and salaries are preserved and eventually growth is delivered, more opportunities are created and we come full circle to a more buoyant market.
Jane Pound.