Please Pass it On
Europe’s corporate chiefs are facing a fresh public ordeal over pay, with the EU apparently about to force leaders to justify why they often earn more than 100 times what their employees are paid.
This one has quite a bit of history. Greek philosopher Plato felt that five to one was the proper ratio between the richest and poorest Athenians. Management Guru Peter Drucker in the 1970s thought that anything above 20:1 was inappropriate. Whilst the employee-owned John Lewis Partnership has for years limited the pay of of the highest paid partner to 75 times the average.
For the 10,000 listed companies potentially affected by the shareholder rights directive, it will lay bare statistics that could drag executives even further into the fraught political debate over inequality. News of the reforms came as RBS and Lloyds Banking Group, the UK’s two part-nationalised lenders, revealed a share bonanza for top executives worth £35m. The ratio of worker-executive pay at the big banks often exceeds 100 times, with Barclays paying its chief exec 181 times more; and Lloyds 125.
Other sectors relying on lower paid workers could potentially show even bigger gaps. US chief executives at Walt Disney and Coca-Cola, for example, are respectively paid 653 and 427 times more than the median pay of their employees.
Brussels feels that the 100+ ratio now so common is all too much. Despite quite strident lobbying by the IoD and other business groups, the new directive is about to grant shareholder power to, in effect, vote down executive pay. And this move is already gathering pace outside the EU. Yesterday, in Switzerland, it was announced that the CEO of Nestle is about to experience a 7% pay cut, courtesy of the so-called ‘Minder’ law introduced across the Swiss cantons by entrepreneur-cum-politician, Thomas Minder.
Ultimately, ‘Executive Pay’ is all about good Corporate Governance, of course. And many countries across the world are increasingly anxious to make sure the principles of equity and accountability are involved in the equation. But what about remuneration for the mere mortals? The UK Minimum Wage will increase to £6.50 an hour this October, but there are deeper dynamics at work. Why have reward packages for Marketeers declined in comparison to salaries for HR practitioners? Why do financial and legal professionals enjoy far higher salaries than their counterparts in medicine? Why do people with STEM skills in the UK earn far less than their equals in Germany and Scandinavia? And perhaps most profoundly of all, why do females earn, on average, 12% less than their male colleagues over the course of a working lifetime?
It’s easy to believe that the answer to most of these questions is simple: The Market Decides. Many economists (average UK salary: £57k) would certainly agree. But perhaps even Adam Smith might begin to rethink his beliefs in a world where ‘team’ outperforms the individual, where technology is exponentially the enabler, where homeworking is replacing office life, where self-employment and elancing are the biggest growth sectors, where globalisation and labour movement is liberalising cost-bases – and where zero contracts and slivers of time are distorting the whole notion of a ‘rewards package’. So, is this the decade when Recruiters will face a new conundrum: how much should we pay the people we are actually trying to recruit?
We only ask because this month has seen a sudden surge in the number of requests for salary surveys received by the team here at 52N. Some have been pan-European (understandable, given different GNPs and sometimes different currencies); some have been sector-focused (which can be rationalised as the effect of increasing convergence); some have been down to the bleeding obvious: the biggest surge in recruitment for 15 years. But a few have been due to a genuine feeling that ‘pay’ is not being levelled by the traditional market forces. If this is the beginning of a new era for how we determine compensation and benefits, the recruitment challenge may be about to get even greater still.
Please Pass it On