The link between what bosses are paid and a company’s financial performance is “negligible”, according to new research summarized by this BBC news item (December 2016)
The median pay for chief executives at Britain’s 350 biggest companies was £1.9m in 2014 – a rise of 82% in 11 years – the study by Lancaster University Management School found.
However, performance as measured by return on capital invested was less than 1% during that period.
The study, commissioned by the investment association CFA UK suggested that the metrics typically used to gauge company performance, such as total shareholder return and earnings per share growth were too short termist. Will Goodhart, head of CFA UK, said: “Too few of today’s popular approaches … genuinely align senior executives’ pay with the economic value that they create.”
Social Policy Responses .
Among the measures under consideration are requiring companies to publish pay ratios, which would show the gap in earnings between the chief executive and an average employee.
Shareholders could also be handed more powers to vote against bosses’ pay – although an earlier proposal to force companies to put workers on boards has been dropped by the government.
This 82% increase in CEO PAY (the top 0.01%) stands in contrast to an average 10% decline in real income since 2008 for the rest of us and so this is further evidence of increasing inequality in the U.K. So if the findings of the Spirit Level are true, this has done enormous harm to Britain over the past decade.
It is also evidence against the view that we live in a meritocratic society (against the basic Functionalist and New Right views of education)- if you can get yourself into that super-elite, it seems that you have the power to set your own bonus, irrespective of what you actually contribute.
This appears to be yet more evidence of the continued relevance of Marxist theory!