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Brown must slow the rise in top pay

Leader
Friday October 4, 2002
The Guardian

Enough is enough. It is time for the government to consider action against the beggar-thy-neighbour pay rises among business leaders that they are incapable of tackling themselves. Last year, according to the new Guardian-Inbucon survey, top executive pay rose by 17%, six times higher than the national average over the same period. This follows increases of 28% in 2000 and 16.5% the year before. Directors are living in a world of their own.

Their seemingly unstoppable increases bear no relation to extra productivity or exceptional performance. The corporate scandals in America - which the US authorities are at last tackling - have had no effect over here. The gravy train has gathered so much speed no one wants to jump off. Worse, they delude themselves that what they are doing has no relevance to the real world, where average earnings are rising by under 4%. How do they expect people to criticise firemen or London underground drivers for asking for - comparatively - tiny increases when the leaders of industry set such a shameful example?

In the early 1980s, when there was a genuine feeling that senior executives were underpaid - though it never seemed to make any difference to economic growth, the Conservative government reduced the top rate of tax from 80% to almost 40%. This was probably the biggest increase in take-home pay ever recorded, enabling already well paid executives to keep an extra £40,000 out of every extra £100,000 they earned. And what did they do? Instead of saying "thank you" they took it as the sound of a starting pistol to ask for ever greater sums of money.

The explosion of top pay has had serious social effects. It has reduced rather than increased incentives at the top because - as the regular tales of corporate pay-offs underline - you now get handsomely compensated for failing as well as succeeding. It has also greatly widened the rift between the top and bottom strata of society. However successful Gordon Brown is in raising the incomes of the very poor, the differential between top and bottom widens because of the huge increases in top pay.

If anyone deserves a performance-related benefit for what he has done it is surely Mr Brown, who has steered the economy deftly through troubled international waters. But the chancellor's pay (£124,979, including £55,118 as an MP) would not even appear on the radar screen of the 136 directors (all men) of the top 100 FTSE companies who earned more than £1m last year.

This will not affect Mr Brown's incentives. He is a driven man. But the huge gulf opening between private and public sector salaries will inevitably make it more difficult to attract the right calibre of management to implement the government's ambitious spending plans for education and health. What can be done? In previous years we have urged voluntary pay curbs, publication in annual reports of the highest paid as a multiple of the lowest and reform of boardroom remuneration committees, which link pay to the "going rate" thereby ensuring perpetual increases.

Nothing has happened - you cannot kill a virus with friendly persuasion. The time has come to put the prospect of higher taxation back on the agenda. If British business cannot lead from the front - except in the race to the nearest bank - then it must accept the consequences. Lower rates of tax have clearly not succeeded in curbing excessive pay. It is time to experiment with steeper taxes. The proceeds could be hypothecated towards building extra hospitals or schools in deprived areas. And who could object to that?