Theresa May has announced new measures to tackle obscene pay levels for senior executives. The proposals include a public register that names and shames high pay, and how shareholders vote on pay settlements. This goes further than the existing rules and I welcome them. But the issue of high pay is a complex one.
I meet many people in Wyre Forest who have set up businesses and who have worked their socks off for two, three or even four decades. Wedding anniversaries, spouse’s birthdays and childrens’ nativity plays have been missed while the individual entrepreneur works hard to secure a deal, or struggle with a problem. IN most cases the business has been financed through great personal risk and when it goes wrong it usually leaves the business owner personally liable for huge debts. For this type of businessman or businesswoman, I am happy that they pay themselves a lot of money. They have created jobs and prosperity at personal risk and they should be rewarded (whilst, of course, not risking the business by too much excess).
At the other end of the scale is the individual taken on to run a business at a vast salary, often incentivised by perverse schemes that encourage risk taking. This individual has not created the business, nor taken on personal risk. (Ironically, public disclosure of pay levels may have led to these excesses. Recruitment consultants suggest offering second quartile pay packages, relentlessly driving up the average.) Paying someone millions of pounds to run a business just isn’t worth it. What special skills do they bring? They are certainly experienced, but to the extent that they are paid hundreds of times the salary of their employees? I don’t think so. Arguably, an entrepreneur who takes their business public (and so removes their personal risk) migrates from the former, hard working lone business person to that of a hired chief.
People who set up businesses and create wealth for their communities need to be rewarded for their toil and risk. Businesses have three stakeholders – the shareholders, the customers and the staff. When the interests of these stakeholders are kept in balance, the business works well and serves the wider community properly. When one of those interests becomes too great, such as staff pay in the banking crises, the business loses its way and collapses. These latest proposals are a way to ensure that these interests are kept in balance.