How fund managers have failed us all on boardroom pay
The financial services industry is supposed to operate as capitalism watchdog. Its inability to fill this role properly means that government now feels forced to step in.
When I went into see the managers at Lindsell Train a few weeks ago (subscribers can read the full interview here) there was, I thought, only one dud note in our conversation.
When we talked about executive pay, they spoke of how important it is for the structure of incentive payments to be right (so that only good things are incentivised) but they showed no interest in the ridiculous absolute levels of pay this means that company executives end up with.
As far as they are concerned, payments in the tens of millions are probably needed to keep "talent" on board and anyway are a tiny amount in the great scheme of a large company's costs.
I disagree on the first point (see endless previous articles) and think the second is beside the point. The British have a pretty good tolerance for inequality, but, as with everything, there are limits. And as I have been saying to the UK's fund managers for over a decade now, if you don't do something about boardroom pay, one government, one day, will do it for you and you won't like that.
I might be about to be proven right (on both points). Look at the candidates for the Tory leadership: Andrea Leadsom (who Boris Johnson tells us has the "zap, drive and determination to be our leader") would clearly like to be having a go at executive pay.
Here's a line from her speech last week: "The importance of wealth and job creation is core to all my beliefs, but the richest people of Britain should know that they will not be my priority. And those people who have become rich by winning boardroom pay rises that bear no relation to company performance should be aware that I find this unacceptable."
Theresa May is clearly on the same page (as was Gove, by the way). In the Times today, she promises to curb executive pay and to install employees on company boards.
The UK's big shareholders and the big boardrooms they are supposed to keep an eye on for us have had endless chances to have a go at fixing the pay problem themselves. They haven't done it. Now the problem so bad that it looks as if a Tory government is going to have a go at fixing it for them.
That's a political shift that marks a major financial industry failure. And rather a shameful one at that.