Industry | 2009.09.01
Here's a challenge to the myths of the mega-earners | Polly Toynbee
Information has power. Throw daylight on pay disparities and let voters judge a fairer distribution for themselves
In the City, the joint is jumping, the FTSE is zooming and everyone is telling everyone else that happy days are here again. The Institute of Chartered Accountants records the biggest leap ever in business confidence . Is this another fit of irrational exuberance? Is it a sucker\'s rally on the way to a double dip?
No one needs revival more than our own beleaguered newspaper industry, but Nouriel Roubini , the Dr Doom economist who predicted the crash, warns that rising oil and food prices coupled with governmental eagerness to repay debt too soon could make this a mirage: expect another plunge or at best an "anaemic" recovery. Either way, millions who have lost jobs and homes – with many more still to be sacked in coming spending cuts – will wait a long time to break open even a modest bottle of sparkling wine.
What is crystal clear is that those who caused the crash suffered very little: top-flight fallers are few and far between. Andy Hornby, who crashed HBOS, glided into a safe haven running Boots. Last week Richard Burrows, governor of the disastrous Bank of Ireland, slipped into the chairman\'s seat at British American Tobacco. Business as usual is back in the City, wrapped in its culture of stupendous power and arrogance, with no reason to modify its behaviour. Untouchable, it shows no remorse because it frightens the politicians, not the other way round.
Taxpayers spent £1.2 trillion of public money supporting banks, but could only stand by in outraged astonishment as the government let taxpayer-owned RBS appoint a head on £9.6m. Bob Diamond of Barclays\' investment arm is hiring £30m bankers on guaranteed bonuses of a year\'s pay. Poaching staff from one another, investment bankers are again pushing up pay rates in pursuit of "talent". Vince Cable suggests "the sort of people we need now are the sort who run the Skipton Building Society, not Wall Street hotshots." What of the threat that they will all flee London if astronomic pay is challenged? "Hyperbolic nonsense," says Cable, in those deceptively moderate tones that out-smart Labour every time.
The Association of British Insurers this week challenged the weak code of practice of executive pay consultants, the great bellows that inflate top pay. It is conflict of interest to sell all kinds of services to the very company executives whose pay they are advising on. The fastest way to pump up pay is to suggest to every company that their remuneration should be in the top quartile.
Compass , Labour\'s left-of-centre group, proposes a high pay commission, but the chancellor rubbished the idea. Or in his own inimitable style said he was "not persuaded". George Osborne was cleverer: he dog-whistled anger about bonuses that bought him a disgracefully easy front-page headline. He said: "It is totally unacceptable for bank bonuses to be paid on the back of taxpayer guarantees. It must stop."
How well he captured public sentiment. But what did it mean? Almost nothing. As ever, the Conservatives cleverly shoot the breeze of public opinion, catching the mood in the air without committing themselves to anything. He would be tougher – by passing responsibility to the Bank of England.
Darling, finding Labour outflanked on the left, belatedly lumbered after him: "If we need to change the law and toughen things up, we can do that. I\'m quite clear that some of the problems we have today were caused by the fact that some traders were incentivised to take risks which neither they nor their bosses fully understood." He would be tougher – by passing responsibility to the FSA.
Hector Sants, head of the FSA, replied tartly that capping City pay is the job of government not the regulator. Politicians, he said, were "passing the buck" and it is not the watchdog\'s job "to bring about social change". Absolutely right. But outsourcing politics is now the fashion: quangos are the place to deposit anything politically difficult, while government loses belief in its own powers.
The idea of a high pay commission has had plenty of support from Labour and Lib Dem MPs, including Jon Cruddas and Vince Cable. Cheekily, Compass asked Osborne to sign up: don\'t hold your breath. The official Labour response was dismal: "It\'s a return to the 1970s" was the predictable objection, in step with the Times leader. But no one is suggesting a prices and income policy. The idea is to set benchmarks so companies consider a reasonable ratio between top and bottom pay: FTSE 100 ratios have shot up from 15:1 to 75:1 in just 20 years.
A high pay commission would change the climate of what is socially acceptable by challenging the self-serving myths of mega-earners. The commission\'s only power would be to take evidence and make recommendations to ministers. With powers to investigate, it would make transparent who is earning what and why, ending secrecy: information has transformative power. I would go further and make all income tax returns public documents. The initial shock would be salutary, as it threw daylight on earnings and wealth. When so few people know where they stand or what others earn, how can voters judge questions of fair distribution?
Politicians worry about alienation between people and their representatives after the exposure of MPs\' expenses brought revulsion and the loss of what little trust there was. "Them and us" resentment runs deep; just read the blogs to see the anger at "ordinary" professional incomes by those who earn less. When Alan Duncan stupidly called £64,000 "rations", it was because he doesn\'t know that over 95% of people earn less. How can people govern or know how to vote unless these basic facts are common knowledge? Research by the Fabians for the Joseph Rowntree Foundation shows how little people know, and how astonished they are to find out: it changes their views. Most people on £42,000 don\'t feel rich because they don\'t know they are in the top 10%.
A high pay commission would spread that knowledge far and wide. Objectors raise the problem of footballers, rock stars and Dyson or Branson entrepreneurs. But the vast majority of high earners work in hierarchies where they are not indispensable: if they fell under a Rolls-Royce, someone else would take over tomorrow. No one suggests some national pay scale of merit from street cleaner to superstar, but it\'s time politicians stopped being bamboozled by bog-standard bankers blagging their way into billions "because I\'m worth it". Call their bluff, before the bubble blows up all over again.
For more information, please visit
http://www.guardian.co.uk/commentisfree/[...]24/mega-earners-pay-commission
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