Monday, 9 January 2012

Cameron's faux pas and executive pay misconception...

Open Mouth - Insert Foot

Last week I think I was pretty ruthless with Diane Abbott regarding a poorly worded tweet and then what counts as an apology.  I don't think anyone believes Ms Abbott is a racist, the problem for me was that she didn't see anything wrong with her tweet (which was wrong in context as well as out of it) - as far as I'm concerned she only did so because she was ordered to, directly by Ed Miliband (which makes his tweet rather unfortunate - though I'll give him a break with regards that.)

As such I think I should be equally as hard on our current Prime Minister.  I guess I have some sympathy with him, simply because Ed Balls is one of my least favourite politicians, however you can't go around saying:

Tourettes seriously effects the lives of many people in the UK, with around 300,000 people suffering from it (only about 30,000 of which have the form which causes involuntary swearing), so it is disappointing to see Mr Cameron speaking in such a way.  He obviously hadn't engaged his brain before he started talking but that's no excuse.  The only thing I put in his favour is the fact that he did come out with an apology and seemed to realise that what he said was not something the Prime Minister should be saying.  The cynic in me worries that this highlights the lack of knowledge/care many/most people in the Conservative party have for people with disabilities - although it's more likely that DC just forgot his place.

Executive Pay

DC is hitting back by saying that there will be increased transparency on directors remuneration.  It is a laudable goal, reducing remuneration levels means more funds stay within the business for investment, increasing salaries of lower employees or more likely distribution to shareholders.  Those of you who don't care about shareholders should realise that the vast majority of shares are held by institutional investors, such as pension funds - i.e. indirectly, us!  

Now there are some good things in this sentiment, making shareholders votes binding for one.  However overall I have a problem with the aim of "transparency".  You see for me this wont work.  Think about your own company, what do you think would happen if suddenly everyone knew everyone else's salaries?  Well people would be wanting to get paid as much as those whom they deem equal to themselves as far as responsibility/type of work etc dictates.  Now multiply that over the entire economy.  If everyone knows exactly what "x" is earning in their comparable role then person "y" will be wanting to earn a similar level - or look to join the firm paying more.  This starts a race to the top as wages are sticky (a cost that is difficult to reduce once it's been increased) whilst increasing movement of staff.  Also backing up this theory is the following study.

That's not to say that transparency is necessarily a bad thing, but other changes are more necessary.  If you want to limit director pay then you have to take it out of their own hands as I have said before.  At the moment pay is effectively set by the "Remuneration Committee" which is made up of Non-Executive Directors (NEDs) and as these NEDs are usually Executive Directors with other companies they are effectively setting their own market rate.  The alternative in my opinion is to overhaul companies structure to match the European way rather than the American.  This would mean rather than one mixed board of Execs and NEDs there would be two, an operational one made up of Executive Directors making the important decisions, with a second "supervisory" board made up partially of NEDs (as the Shareholders representatives) but also other stakeholders.  These other stakeholders would include representatives of the employees, the bank/whoever provides the finance and other interest groups (perhaps regulators etc). 

Whilst I'm pleased that somehow we have managed to get a Tory Prime Minister to talk about this issue I really hope that they look at the problem thoroughly before any legislation is introduced that could have the opposite effect to that they desire.

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