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June 11, 2007

Grniaud Business Editor

Well, if she's going to miss the most basic point then what hope for the analysis?

The highly paid banker did not understand my question and could not answer it. This exchange underlined for me how far executive pay has become divorced from reality. It is not, it appears, about money any more. Or not entirely. A hefty pay rise - to, say, £10m - can, according to people who know these things, give entry into a whole new social set, not open to those with a mere £2m a year.

But it is also about self-worth. Company directors are comparing themselves with their peers. If one chief executive is paid in the millions, another will want to match him (and it is almost always a him) and his perks. This is how many of them judge their own value.

It's called status seeking. It's something hard wired into human beings, most especially the male of the species. It's happened in every human society so far. It can be based upon birth order,ability at hacking the heads of peasants, sucking up to the Monarch, there have even been times and places when it's based upon how much you give away or destroy (potlatch societies). But status seeking is always going to happen.

Having people seek such status by being all alpha male about how hard they work and how much they produce for others to consume is a marked improvement on the other types listed above.

And, increasingly, directors of public companies are ranking themselves against their rivals in the private equity world. Private equity groups are buying more and more public companies and taking them away from the stock market. Out of the public eye, the partners in private equity earn huge payouts for turning companies around, and they guard the details of those windfalls closely. In an interview with the Guardian published today, Wol Kolade, the chairman of the British Venture Capital Association, the private equity industry trade body, dismisses union calls for greater scrutiny of pay and bonuses. Undoubtedly, however, they are pocketing huge sums.

And now their peers in the world of quoted companies are demanding private-equity style rewards for improving performance. Their claims are emboldened by threats of disappearing to run a private equity-owned business.

Quite. Competent execs are in a market, we expect them to maximise the returns to their scare resources.

The solution can lie with the remuneration committee. This consists of a small group of board members who construct these pay deals.

Quite, the remuneration committee is the other part of said market. Betwen the two, the executives and the committee,  we've got willing buyer and willing seller at a price. That's how markets work, movin resources from lower valued uses to higher.

The problem is?

June 11, 2007 in Media | Permalink

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Comments

As is so often the case with Sociofascists, the problem is THEY are not the ones in power, THEY are not the ones gaining the big money. To them it "cannot be right" as they have a false sense of their own skill and intellect at one level and a sneaking sense they got away with what they actually have due to inheritied priviledge, hence their desire to ladder-kick as a form of catharsis.

Posted by: Roger Thornhill | Jun 11, 2007 9:47:13 AM

Exactly, the problem is that top rewards don't appear to go to literate arts graduates. She also seems to have a lot of previous complaining about men in "top jobs". But the real point is an apparrent lack of understanding of markets (perhaps not that odd given she used to work for the FT) Perhaps she might ask a health trust executive how much harder they are working after their self voted pay rise, or an MP, or (most obviously) a footballer?

Posted by: MARK T | Jun 11, 2007 10:15:46 AM

"It's something hard wired into human beings, most especially the male of the species"

You've obviously not met my wife and her friends, it's a bloody arms race. As I always say to her "You don't try to keep up with the Joneses, the Joneses are desparately trying to keep up with you".

Posted by: Mark Wadsworth | Jun 11, 2007 10:15:46 AM

The obvious problem is the incestuous nature of the committees: you sit on mine and I'll sit on yours, as it were!

And if everyone wants to be "upper quartile" there will be inflation!

(All this bettre than regulation of course...)

Posted by: ChrisC | Jun 11, 2007 10:21:57 AM

"As is so often the case with Sociofascists, the problem is THEY are not the ones in power"

Or, "what's yours is mine, and what's mine is yours, mainly because you've got more than me."

Posted by: Kay Tie | Jun 11, 2007 11:47:49 AM