When you hear that 100 key figures have come out in support of a ‘high pay’ commission, it does make you stop and reconsider your view, re-evaluate your thoughts and do I want to change my gut reaction? ……….. No. Why do we need a high pay commission? Is it shutting the door after the horse has bolted? Probably. Is it going to stop the same thing happening again? Probably not! Is it going to decrease our ability to attract top talent from around the world? Yes. Will it lead to our top talent leaving in search of their fortune? Absolutely.
By restricting pay settlements, imposing excessive taxes on top earners and smothering an employers ability to attract and retain top talent, a high pay commission has the ability to destroy exactly that which it is trying to build – a strong economy.
There are very good arguments for controlling remuneration. Linking pay and bonuses to both long term and short term performance is essential. Defining good performance and distinguishing exceptional performance plays a vital role in incentivising and rewarding top performers, but equally employers must not be scared to say, “you weren’t good enough this year, there is no bonus, no pay rise etc.”
We do not need a ‘high pay’ commission. We do need employers to look at what they pay, how they pay and when they pay. It must be appropriate, motivational, performance and time bound.
Hi Donna
Clearly this is a debate that needs airing, and I'll put my cards on the table and say that I take an opposing view.
I guess that there are some basic questions that need addressing here:
1. 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?
2. What empirical evidence is there of UK executives leaving the UK to take up positions in (e.g) US organisations for higher salaries?
3. 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?
I'm sure that we'll get the ball rolling on this between us though!
Graham,
My views on your questions:
1. Yes. Possibly more so than ever. Otherwise our most-talented may end up going to France/Germany/Japan where the recession has now ended, apparently.
2. I doubt there is any. Have you spoken to any senior US executives about this? Bonuses and 'renumeration' as I've often heard it called by US companies, is a major, major factor in choosing their next employer.
3. Ask the question another way round – if the MD got 5% and all other staff got 40%, do you really think the MD would be as aggressive with the sales team and new business? In smaller companies where the MD may own the company, they may get almost ALL the profits – so what's wrong in an MD of a larger company getting a 40% salary bonus?
Good article Donna.
Bradley
Great article Donna. Your points are well-made. Just an additional 2 thoughts.
1. If anyone, Graham included, has any doubts about the effects of compensation on star-players' recruitment decisions, consider Manchester United's predicament competing with Barcelona or Real Madrid. "But that is football" you might be saying? Wrong; that is money talking.
2. In an age where we are expecting the Government of our respective countries to "make things right", history shows that they invariably don't. The key issue of what is correct, versus excessive, compensation to a Company's Chief, rests with the empowerment of that Company's Board of Directors and the pro-active scrutiny of its shareholders.
Keep up the good work. Best.
Michael. TMF, Beverly Hills, CA, USA.
Hi Donna
This is the first time I have read your blog and it is well written concise and to the point. I was not aware of a High Pay Commission! I own my own company which is a small business looking to grow and I always want to be able to pay and be paid fairly and at the top of the scale. I don't see any value in someone outside of my business setting how much I can pay myslef or my employees.
Keep up the great work.
Regards
Shelley
Hi Donna, good article. topical.
My twopeneth:
Unfortunately not all organizations in the public or private sector agree on how to address this delicate crucial issue.
Some points for discussion:
1) We live in a society where individuals consider the public sector as a means to generating wealth (i.e. adopting private sector business ethos)instead of serving the public. They achieve this because they are not 'effectively' accountable. They should reap rewards from achievement based on outside independant measurement (not internal where they can bypass systems). I agree, if they fail, they do not receive.
2) The private sector adopts performance based pay commissions. This is essential in a competitive environment. How much one gets is based on how well the company is structured and specifics to their industry. This will always bve the case.
The question is more applicable to the public sector than private.
All the best, Asit