Friday 4 January marked the day by which each of the nation’s highest-paid CEOs had already earned the equivalent of the average, annual wage.
As per what has become a tradition, think tank the High Pay Centre (HPC) dubbed the day ‘Fat Cat Friday’ – sparking off contentious think pieces in the media about the esteem in which top bosses are held.
In The Guardian, Owen Jones struck a sceptical note: “We are indoctrinated to believe that the booming paypackets of the boss class are down to their get-up-and-go, their innovation, their phenomenal hard work,” he wrote. “It is a pernicious myth.”
Jones scorned: “This is the wealth collectively produced by the hard effort of millions of people, who labour by hand or by brain. All of these CEOs depend on lavish state largesse: whether it be an education system (and its teachers) who train their workers, the nation’s expensive infrastructure, a law and order system to protect their property, research and development whose products they can commodify, a social security system to top up their workers’ low wages – I could go on. That is why we should snap out of thinking that they somehow deserve these vast sums: they don’t.” [1]
By contrast, City AM deputy editor Julian Harris took issue with the data that the HPC used to pinpoint Fat Cat Friday, noting: “This year it is based on a £3.9 million median FTSE 100 chief executive pay packet from 2017 – up from £3.5m the previous year, although lower than £3.97m the year before that. Similarly, the mean average pay packet of £5.7m is up sharply on £4.6m, but not much higher than £5.4m from 2015.”
Harris conceded that shareholders are “right to demand sane, simple and transparent pay structures”. As such, he backed an HPC proposal for the replacement of long-term incentive plans – or ‘LTips’ – as the default remuneration model.
“However,” he stressed, “City AM will continue to argue that ‘super talent’ is not a myth, and that business leaders who create billions in shareholder value should earn pay packets that reflect their worth. Take the case of Kate Swann, for example, whose announced departure from SSP last November wiped around a quarter of a billion pounds off the company’s market cap. Does a woman valued by the market at £250m not deserve an exceptional salary?” [2]
Has Harris got a point, here?
The Institute of Leadership & Management head of research, policy and standards Kate Cooper says: “One of the issues here is transparency. If the chief executive earns however many millions of pounds, the relevant organisation should be able to publish a rationale that can be digested and understood. And by that, I don’t mean one that’s swamped with data on complex benefits packages – I mean one that is clear, well presented and expresses the CEO’s salary as a ratio of what the lowest-paid worker in the same firm receives. With that material out in the open, people inside and outside the organisation can take a view on whether the numbers stack up.”
Cooper points out: “Jones’s comments follow on rather neatly from our commentary in one of last week’s blogs, in which we asked who is ultimately responsible for skilling a workforce that delivers a high level of profit to a relatively small number of beneficiaries. But looking back on 2018, one thing that really stood out from the leadership discourse that played out over the year was that quite a lot of people were challenging not so much the concept of super leaders, but their PR-approved narratives. Many studies and leadership experts concluded that it was the people behind those individuals that made them so successful.”
She notes: “That was certainly a key theme of some of the writings in last year’s Drucker report, published in partnership with the Institute. Several of the report’s authors took issue with the fallacy that one person alone is able to transform a multinational corporation. So when the market seems to believe that that is the case, it’s buying into the fallacy, rather than the reality of the circumstances in which the CEO is working. Of course, nothing breeds confidence like one, prominent individual’s success. But I’m hoping that, in 2019, we will hear much more about the networks of talent upon which CEOs routinely rely.”
Cooper adds: “The most recent chapter of President Trump’s story is rather instructive in this regard. While he has worked to push an image of himself as the one person who can effect change, behind the scenes many of his initiatives have been challenged. As a result, his support network has suffered numerous departures, with key administration posts currently filled by acting staff.”
For further insights on the themes raised in this blog, check out the Institute’s resources on authenticity