Monday, 17 August 2009

Time for government intervention on excessive pay?

Although few would now argue that there should be a legal requirement for a minimum wage, calls for a High Pay Commission to curb excessive pay will inevitably create a stir in the boardrooms of the UK. A number of major public figures have added their names to the campaign of Compass (a UK centre-left “Think Tank”) to do just that, and the campaign is already receiving a high level of media coverage and comment. Compass argue that the current economic crisis was largely fuelled by the high salary and bonus culture particularly within the finance and banking sector, and that now is the ideal time for the government to be taking action. The argument is illustrated by an example of an employee on the national minimum wage who would have to work 226 years to earn the same amount as a Chief Executive of a FTSE 100 company earns in just one year. Compass also argue that top managers are often rewarded for short-term success, but never penalised for long-term failure. Especially as many of the failed banks are now in public ownership, it’s argued that the government has a moral obligation to set reasonable pay structures within such institutions.
  • What’s the current national minimum wage in the UK?
  • It’s often argued that large institutions (particularly financial organisations) have to pay their senior managers seriously high salaries, otherwise they would be recruited by rivals, or possibly tempted to move overseas where salaries may be higher. As the UK is as deep in the financial crisis as the majority of other industrial nations, is this argument valid?
  • Many organisations have introduced links between the company’s performance and the financial reward of all employees. Typically, a professional employee (earning around £25,000 per annum) may receive a bonus of 5% if the company hits all its performance targets. The Managing Director (probably earning upwards of £100,000 per annum) may receive a bonus of over 40%. Is the motivation to perform the same for both employees?
  • What other mechanisms may a company wish to introduce to share the financial success of the business between all employees?
  • What do you believe will be the reaction of the UK public to the call from Compass for a High Pay Commission?

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