“Excessive” executive pay – can it ever be justified?

By Paul MacKenzie-Cummins

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I was recently asked to appear on ITV’s Good Morning Britain to debate the issue of executive pay. It is a subject I have commented on a number of times in the media and I suppose my views on the subject differ somewhat to the general consenses.

Conventional wisdom has it that executive pay is wrong, on every level. But the public bashing over how much some of the UK’s top business leaders are paid is largely based on ignorance of some of the facts. How much is too much, and who is to say how much someone is actually worth? Is it ever right that those at the top of the tree earn a somewhat disproportionate amount more than those who sit elsewhere on the organogram?

The answer to the question comes down to this: is the organisation in a better position with that person at the helm, or not? If the business is seeing revenues increase, market share expands, new jobs created and more opportunities for career advancement created as a result, then surely the return generated by that person more than justifies the investment made in them?

One example I have used time and again is that of Harriet Green. When she took over at Thomas Cook, the company was on its arse yet within two years she brought it into profit and growth. She was paid £3 million and when she announced her decision to move on, the company’s value dropped by a whopping £400 million overnight – her ‘value’ was placed at 133 times more that was she was being paid.

Many people cite the case of WPP founder and CEO, Sir Martin Sorrell as an example of all that is wrong with executive pay. In 2015, he received £70.4 million followed by £48 million in 2016 – this slimming down in pay the result of a series of shareholder revolts. Excessive it is, but one should also consider the impact on the value of the business if he were to leave? This points to a subject for another discussion – is having a personality so closely associated with the brand a good or bad thing for the future success of said organisation?

Yes, I am in favour of executive pay – when it is clearly good for the business and all those involved. But there are clearly instances when this is not the case. If the business misses targets, sees a fall revenues and market penetration slide with the loss of jobs, then to pay an executive such a large salary or bonus is not only wrong, it is rather vile. Organisations who practice in this way should, in my view, be publically named. In doing so, they may be shamed into taking positive action to improve their practices on pay. Of course, such action should be done out of a sense of moral conviction and not because they have been shamed.

But we’re living in the real world and like it or not, there remain certain organisations who quite frankly don’t give two hoots for their people or how they are perceived. However, when they see how their employer brand is perceived and the negative impact this has on their bottom line (loss of top talent, high staff turnover rates, fall in share values…the list goes on), they will be forced to act.

Executive pay is a divisive subject, I admit, and one that I was keen to canvass my own network on. So, I posed the question to my LinkedIn connections – what do you think about executive pay, can it be justified? The response was overwhelming. In fact, as the snapshot below shows, over 35,000 people saw the post and 35 people commented on it.

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Aside from the occasional eejits who posted some rather idiotic comments suggesting that I had no opinion of my own and was relying on my network to help me formulate one (because I am obviously very dumb despite having spoken about this subject many times before), the majority of comments were excellently reasoned and offered some great positions.

Take a look at some of them here:

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Rather disappointingly, I was substituted by ITV at the eleventh hour in favour of a former runner-up of The Apprentice and contestant on I’m a Celebrity, Get Me Out of Here.  My replacement may have the public profile but she was evidently caught off guard by the probing she received from ITV’s Kate Garraway. This is a shame, because there was a great opportunity to have a good debate.

Executive pay remains an issue. The latest report from the High Pay Centre reveals the extent of the problem, but an escalation in shareholder revolts over the last 12 months suggests the gap may be beginning to narrow; albeit at a slower rate than many would like to see.

But we must be careful when bashing executive pay as a whole – while there are evidently a number of CEOs who are undeserving of such extortionate salaries, many more can just as easily justify them.

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