Merryn's Blog

Three things that could curb the high pay of executive fat cats

By 5 January – ‘fat cat Tuesday' – FTSE 100 CEOs had already been paid the average worker’s salary for the year. Merryn Somerset Webb looks at what might bring this kind of financial nonsense to an end.

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"Fat Cat Tuesday". That's what the High Pay Centre branded yesterday, when it released figures showing that, according to its guestimates, the average FTSE 100 CEO had earned more by the end of yesterday than the average worker (on £27,200) would make all year.

These numbers aren't 100% fair (the Adam Smith Institute calls them "pub economics"). The High Pay Centre clearly has an interest in hyping high pay (if there are not outrageous pay packets on offer, who needs a High Pay Centre to complain about them?) and the average worker on £27,500 is very likely to be getting tax credits of one sort or another paid for by the taxes on the salaries of the CEOs see our post on this here).

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But still, there isn't much getting away from the fact that salaries at the very top end (0.0001%) have been getting 1) too high and 2) much, much too complicated. Is it reasonable, for example, that the ex-boss of Persimmon should be getting paid £16m two years after leaving the firm from an incentive scheme set up a mere six months before he left the firm? Of course it isn't. You can read our previous posts on the matter here.

The key question now is what might bring this kind of financial nonsense to an end. There are some possibilities.

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It might be a sense of embarrassment. The Institute of Directors suggests that one way to make senior management show a little restraint would be to allow workers to sit in on remuneration committee meetings.

It might be falling profits and/or falling markets. Justifying super salaries is easier when everyone else is coining it in too. But with the markets off (the FTSE 100 fell 8% last year and hasn't exactly got off to a cracking start this year), profit growth under threat from rising wages coupled with low demand, and a good number of dividend covers looking dodgy, it might not be so easy over the next few years.

Finally, it might be pressure from fund managers. In the magazine this week I interview Daniel Godfrey (ex-chief executive of the Investment Association). We talked about the many things bearing down on the fund management industry (technology, price competition, regulation, cost-conscious pensioners etc) and how that might mean it soon stop making the super profits it has long been used to.

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