It’s time to name and shame the corporate scroungers

David Cameron has wearied of austerity. Last summer the prime minister took a bucket-and-spade break in Cornwall to show solidarity with middle Britain. This year he has opted for the sumptuous splendour of a Tuscan estate. Mr Cameron has had a turbulent time of late. Aides say he needs the rest.

I cannot see why anyone should worry about his choice of holidays. There is something infantile about politicians pretending to feel the pain of the voter on the Clapham omnibus. People knew when they elected him that Mr Cameron hailed from wealth and privilege.

If the prime minister is to be criticised it is for pretending otherwise. Pace George Osborne, the chancellor, we have never been all in this together. Sure, ministers have taken a pay cut. They have also capped the salaries of senior officials. This is gesture politics. These are not the sort of people who will ever find themselves running short of money on a Thursday.

The problem with pay at the top in Britain is in the private sector. One group has sailed unscathed through the global financial crisis, the recession and the fiscal squeeze: the executives at the helm of UK’s big companies. The banks, still paying hefty bonuses on the back of taxpayer subsidies, provide the most egregious example. Barclays distributes a large slice of its profits to a few hundred employees. Bob Diamond and his colleagues, though, are not alone in their excesses.

As my FT colleague Brian Groom has detailed, the chief executives of FTSE 100 companies saw their pay rise last year by a median 32 per cent. That compares with 2 per cent for most workers. This was not a blip. In 1998, the average pay of these business leaders was 47 times higher than that of employees. By 2010 the multiple had soared to 120. Yet the real value of their companies hardly changed. So much for claims that pay matches performance.

The upshot has been a new plutocracy whose interests and incentives are wholly detached from the rest of society. The share of national income taken by the top 0.1 per cent has returned to the level of the 1940s. Soon we will be back in Victorian times.

The ritual response is that this is all about globalisation. Businesses compete across the world. Unless they pay the going rate, talent will go elsewhere. This is pretty much self-serving nonsense. There are some executives who, in the manner of football players or rock stars, can name their price. But anyone with a passing acquaintance with Britain’s boardrooms knows they are also stuffed with time-servers. Pay levels are set by self-sustaining cartels. Remuneration committees charged with tying rewards to outcomes are hopelessly conflicted. Shareholders cannot be bothered to offer more than token protests.

The inequality is measured not just by the gap between the top and the bottom. The boardroom elite have left behind those at the apex of the professions and entrepreneurs creating jobs and wealth in small and medium-sized businesses.

One scarcely needs to sign up to the politics of envy to believe this is deeply corrosive of the sense of fairness and shared obligation on which liberal democracies depend. It exempts the undeserving rich from the responsibilities borne by everyone else. It erodes acceptance of the role of wealth creation in raising living standards for all.

There is no quick fix. Pip-squeaking tax rates would drive the best elsewhere. Governments cannot set pay. Exhortation takes you only so far in persuading shareholders to clamp down on pay and option packages that reward failure. What’s left is the bully pulpit – a concerted effort to explain that it is as socially unacceptable for these executives to overpay themselves as it is for so-called welfare scroungers to over-claim on their benefits. Now, there’s a useful cause for the tabloid press.

The process has to start with transparency. Companies should be obliged to provide much clearer information about the relationship between performance and pay. Complex “incentive” packages should be decoded. Boardroom salaries should be consistently measured against the rest. Shaming the culprits won’t solve the problem entirely. It will do a lot more good than worrying about where politicians spend their holidays.

It’s time to name and shame the corporate scroungers, © 2011 Financial Times