Saturday, 26 March 2016

Executive Pay

To continue with more of "the employer class outlook that is beginning to pervade this blog", here is Merryn Somerset Webb having a go at excessive top management pay.

This isn’t just a UK problem (look to the US and you can find a long, long list of CEOs cleverly extracting $20m a year from the companies they have been appointed to run). But it is an increasingly serious problem for two reasons.
One, it is entirely unnecessary, and therefore wrong (it represents a pointless transfer of wealth from shareholders to managers). And two, because it looks bad......capitalism is amazing. But it only works as long as it keeps making us all better off and – crucially – is seen to be doing so. Stupidly high executive pay packets jeopardise both the reality and the perception of capitalism. That’s a very bad thing indeed."

It could be said that it was inevitable that this would happen as control of companies passed from the owners to managers employed by each other on behalf of the owners and that it is the shareholders who the problem mainly affects who are the ones that have it in their power to put it right, however, in the comments, P Kralj points out:

Shareholders will vote against such pay if they are enfranchised. Most shareholders hold their investments through fund managers and it is the fund managers who vote. The beneficial owners of the shares are not permitted to vote. This is just the same system that the trade unions of old used before Thatcher. It is about time we stopped these commissars voting with our money. If only those with a beneficial interest in the shares were allowed to vote these vast salaries which are unearned and unjustified and are only permitted because of the power in the hands of those who earn them, would not exist.

So in reality something that looks like a necessary problem with capitalism, the better off getting richer at the expense of the worse-off, as railed against by Piketty et al, seems to be more of an unnecessary problem that a few small, but fundamantal changes will go a long way to put right. A bit like LVT, in fact.


Antisthenes said...

Piketty now there is an economist you need to avoid like the plague. He spouts total nonsense. As for executive pay and wealthy people. We do not rail against celebrities who are paid handsomely only because they afford us enormous pleasure personally producing nothing. So why do we rail against entrepreneurs and the like for being paid handsomely when they give us enormous please by the goods, services and jobs they provide for us. We owe them our standard of living even our poorest are better off than in any time in history. Oh and it allows us to pay to watch our favourite celebrities.

Mike W said...

Antist above,'So why do we rail against entrepreneurs' again.It is about the 'managers' who take over after the entrepreueral stage.Lola, thanks I will read Piketty as soon as I can get it in paperback.

Antisthenes said...

Ooops sorry! If you want to read economists who know what they talking about try Mises and Hayek. Or the blogs on them Mises Daily and Cafe Hayek. You can't go wrong with Adam Smith either. Oh and also avoid Keynes he invented modern day boom and bust.

Mark Wadsworth said...

B, I've said many a time that a large part of the solution is end tax breaks for pension funds and other intermediaries. By default, more shares would be owned by small investors who are more likely to vote against these high salaries.

Bayard said...

Mark, definitely with you on that one. If the government wants to subsidise pensions, (still a bad idea, IMHO) the they should do this as they are paid out, not as they are paid in. OTOH they're not really trying to subsidise pensions, that's just the window dressing, the real idea is to subsidise the pensions industry.