Last week it was revealed that the pay of FTSE 100 executives rose by almost 50% last year. The overwhelming impression for me was one of deja vu: last October saw a parallel media storm after the same research company announced that CEOs' pay had risen by 55% over the previous year. (This year's study referred to all boardroom pay, not just that of the CEO, whose pay this year rose by a mere 43%.)
Shocking? Yes. Surprising? Not really. Deborah Hargreaves of the High Pay Commission hit the nail on the head when she spoke about a 'closed shop' that needs to be broken open. A lot has been made of the idea of employee representation on remuneration committees as a potential brake on high pay. But at least as important as who should be on these committees is the question of who shouldn't be on them.
At the moment, cross-pollination among Britain's corporate elite means that theoretically 'independent' directors are often deciding on pay for people who, in turn, are responsible for setting their own pay. Hardly surprising, then, that they all continue to conclude that they're excellent chaps deserving of the most generous rewards. That's why, in the government's forthcoming consultation on executive pay, FairPensions will be arguing strongly for more robust measures to prevent conflicts of interest. Of course, it's not the only issue here, but it's an obvious place to start.
The real puzzle, then, is not why these committees keep ramping up top pay, but why shareholders - including those who look after our pensions and other savings - continue to overwhelmingly endorse them. An interesting snippet from the BBC report of last year's findings on CEO pay is that the researchers thought:
'shareholders were likely to be annoyed by what it called the "business as usual" approach to executive pay, after only a short period of restraint during the economic downturn'.
I say 'interesting' because, eminently reasonable though it might sound, sadly that assessment isn't going to be winning any awards for Year's Best Prediction. At this year's AGM season, when - as we've just discovered - pay packages soared out of all proportion to shareholder returns for the second year in a row, the reaction of investors didn't register much above 'mildly peeved'. Yes, there was noticeably more noise around executive pay than in previous years. But, for all that, not one FTSE 100 remuneration report was rejected by shareholders in their advisory vote.[Edit: Since I wrote this, a newly released piece of research hints at why this might not be quite such a perplexing puzzle after all: asset managers' own pay rose by 18% last year, apparently due to "pressures to attract and retain talent" - exactly the same dubious justification that's usually trotted out for phone-number salaries at chief executive level. Indeed, some of the companies which faced significant opposition to their executive pay packages at this year's AGMs were themselves investment firms.]
The government is currently considering whether to strengthen shareholders' powers to veto remuneration packages. FairPensions has always argued that, if shareholder oversight is to have any meaning, shareholders need the tools to hold boards to account. But, crucially, they also need the will to use them. Perhaps ultimately it will fall to us, the individuals whose money is at stake, to strengthen their arm.