The report of the High Pay Commission, delivered the other day, has put nourishing flesh on the bones of what many of us had perceived long ago: that Gordon Gekko’s 1980’s mantra “greed is good” has been superseded throughout the upper echelons of the money-manipulating industries by the conviction that greed is the sole motivation for any deal, move, argument, or even thought.
Two years ago, the Financial Services Authority was reporting that nearly 3,000 UK-based bankers were receiving seven-figure salaries, let alone the top-ups contrived through share options and bonuses. But since the Con-Dem coalition came to power, the highest-paid ten percent have enjoyed further pay rises of an average two percent – a handy £100,000 if your “basic” salary is £5m. By contrast, low-paid workers have seen their incomes fall because inflation is running at five percent and average pay rises are at 0.4 percent, the lowest in recorded British history. As we know, the low-paid take a greater hit proportionately from inflation because most of their outgoings are on essential goods and services where inflation is highest.
These pay figures were released by the Office for National Statistics, a body that succeeds in irritating the Communities Secretary Eric Pickles on pretty much a daily basis. Expect the ONS to go the way of the Audit Commission and any other public body whose findings tend to embarrass the government.
Using his now routine argument that two wrongs do indeed make a right, David Cameron refuses to take any stick for the recent growth of wage differentials on his watch because the wages gap did not noticeably narrow under Labour. But for most of the thirteen years of Labour government, everyone’s income rose. Since Margaret Thatcher arrived in Downing Street, the average wage has risen by 300 percent. Over the same period, though, high-earners have done rather better. The salary – the basic salary, mind – of Diamond Bob, the boss of Barclays, is 3,000 percent higher (yes, ten times as much as the average) than that of his predecessor thirty years ago. No wonder his default facial expression is a self-satisfied smirk.
The HPC says that CEO’s are generally paid up to a hundred times the average salary of their workforce. Its chair Deborah Hargreaves wrote in The Guardian: “Our year-long enquiry has led us to believe that excessive top pay levels are not only corroding trust in business but also damaging society and the economy as a whole”.
Whatever George Osborne’s Autumn Statement brings on Tuesday, it will certainly not unleash any moves against the remunerations gobbled up by business executives, bankers, financial speculators and all the other unproductive detritus of triumphalist capitalism. The coalition (largely through the neutered mouthpiece of Vince Cable, the Business Secretary) periodically make vague tut-tutting noises about the confetti falling on the money-laundering sector, but they do nothing about it because their friends and bankrollers live there. Cameron remarked once again the other day that he wants to “tackle the welfare dependency culture” but you won’t catch him threatening “the bonus dependency culture”.
There are three canards that are routinely trotted out in supposed justification for the grossly inflated “packages” negotiated by managerial types in the money markets. The first is that you can only get the best people by paying them top dollar. The second is that you have to reward “success”. The third is that if you don’t pay these shysters what they reckon they are worth, they will flounce off somewhere where they are appreciated. Angela Knight, chief executive of the British Bankers’ Association (and – would you credit it? – a former Tory minister) trots out these lines several times a day, but nobody outside the City of London and the Tory party has credited a word she’s said since she joined the BBA three years ago,
None of these propositions survives a few seconds of what I can only call common sense. Take the claim that there is an organic link between the “best” people and the highest salaries. This only persuades if you equate greed with ability. Curiously, no one – and certainly no government minister – links these two factors in any sphere but finance and business. Other professionals are assured that their work is vocational and this is its own reward. The BBC, for instance, is told not to offer so-called “competitive” rates to famous presenters and performers because the “privilege” of working for the Corporation makes up the loss.
No doubt Barclays will reckon that they would have been unable to entice Bob Diamond across the Atlantic for any less pay per meeting than the average teacher makes in a whole lifetime. On the other hand, Diamond was on the Barclays payroll for fifteen years before becoming CEO. And I know dozens of Americans who have spent pretty much all their adult lives in Britain for a fraction of Diamond’s chips. So living in London must have its attractions too and might be considered a bonus-sized “perk”.
But why do banks and other employers in the financial services imagine that expecting an astronomical salary is an indication of ability, let alone desirability? Surely these companies favour managers and other senior staff who evince more faithfulness to the company and appreciation of working conditions than that shown by the average premier league footballer to his club. If the city is packed with chancers looking for a higher-paying berth, it must be a stiflingly self-interested environment. And while you’re advancing the argument that these speculators are making money for their employers, you’d better be sure that they’re not siphoning away rather more than you think they are, which is what those motivated primarily by money are rather apt to do.
At his party’s conference, Ed Miliband made the telling point that only Cameron could believe that you persuade the rich to work harder by paying them more and the poor to work harder by cutting their benefits. Except of course that it isn’t only Cameron who believes it. Large swathes of the electorate have let themselves be taught to say that “benefit cheats” are a scourge on society while tax cheats are being smart and thwarting officials who are as repellent as traffic wardens. This perception is very much further developed in the US where Tea Party-supporters have swallowed the carefully crafted case that the mega-rich – like the Koch brothers who actually fund the Tea Party – are unjustly taxed by a wickedly spendthrift administration, even as unemployment rates break records and hundreds of thousands default on their mortgages.
Then there is the notion that rewards recognise success. I put the word in quotes before because it doesn’t like to be interrogated. Deborah Hargreaves confirms what we all knew: “Our research has shown little connection between pay and performance”. Well, of course it hasn’t. Barclays knew that they were gambling on Diamond Bob when they appointed him. But they also knew that they would be out of pocket if the gamble didn’t pay off. If Barclays fall short of their projected profit margins this year, what are they going to do? Dock Bob’s pay? I don’t think so.
That useless article “Sir” Fred Goodwin trousered a phenomenal golden farewell and pension deal when he left the Royal Bank of Scotland, even though he was about as big an asset as Typhoid Mary to the bank itself – which, you recall, had to go cap in hand for a government bail-out. I could never understand why Gordon Brown’s financial support to RBS was not reduced precisely by the amount of Fred the Shred’s pay-off (a “notional fund” of £16m releasing upwards of £70,000 per year to a man stepping down at 50), so that the space-fillers at the bank took the hit rather than you and me.
The plain fact of it is that there is absolutely no connection between executive pay, bonuses or share options and the vagaries of the market or the share price or the annual accounts. None whatever. There is every connection between the size of the cojones displayed by the executive and the gullibility of the remuneration committees that determine who gets what. Hargreaves of the HPC says that “pay is too often set by a closed shop of individuals on remuneration committees with little regard to the conditions among the rest of the workforce, and the packages have become so complex that even shareholders struggle to understand how much they are worth”.
The phrase “closed shop” is resonant. Those inside the magic salary circle jealously guard the secrets of how they manage it. Not only does this bestow a useful mystique that encourages aspiring arbitrageurs to earn their spurs and perpetuate the elaborate scams practised therein, it also helps to baffle the taxman.
The government is rather keen on closing “failing” schools and hospitals and on public servants who can be characterised as “not delivering” or as otherwise surplus to requirements being “let go”. It would be instructive to know how far these stances have been expressed to those banks that received support from the Exchequer.
And finally, there is the untested claim that banks and other financial services will haemorrhage staff if they are denied their accustomed level of goodies; indeed that those companies themselves will have to consider quitting the City of London and relocating if ministers dare to propose any limits on their corporate greed. To which the proper answer is an immediate “goodbye”. By all means, seek more hospitable circumstances in Bogotá or Damascus or Pyongyang. And if you have no scruples about operating well inside the black of a really massive wage gap, go and speculate in Mogadishu or Dhaka or Tarawa.
But just think about it for a moment: the present economic instability is global. What’s more, the disenchantment with overpaid speculators is also global, spearheaded by the Occupy movement that is now active in approaching 3,000 cities from San Francisco to Seoul. How could traders be sure of landing a secure position in a foreign land? How could companies be sure that they won’t relocate into an environment that would grow rapidly uncomfortable?
The threat to leave is a myth, of course. It’s just a bargaining counter, both for individuals parlaying a raise and for companies who want the coalition to have a ready argument against further regulation. Because don’t run away with the idea that there is any sort of desire in the Tory part of the coalition to ameliorate the socially divisive effects of the recession. Many backbenchers and some ministers favour the scrapping of the minimum wage, the cutting of taxes for high earners “to stimulate the economy” (ha-ha) and decoupling from European human rights legislation.
Just because it’s been keeping its cards close since the election, the ideological wing of the Tories hasn’t gone away. Indeed, the evidence is that it grew at the last election. “Back to the Middle Ages” is its unexpressed cry. These fundamentalists dream of a time when the great majority of the population return to serfdom or homelessness while the favoured few live in fortified communities and move around in reinforced privacy, believing themselves inured against the climate change in which they anyway don’t believe, against contact with strangers, against the natural world, against the reach of government or the law and – most important but perhaps least dependable from their own point of view – against the sound of the tumbrils.
Oh, and anyway … is the financial sector such a towering asset that we need to hug it to our bosom and throw sweeties at it? After all, the public sector earns the British economy half a billion a day – that, at any rate, is the amount that Francis Maude claims will be lost by Wednesday’s mass walkout. Does anybody know whether the City pulls in as much as half a billion a day?
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