The High Pay Centre’s obsession with CEO pay does nothing to help workers

Morgan Schondelmeier

August 20, 2021

The High Pay Centre has found that median pay of FTSE CEOs is down 17 per cent since last year, a drop from £3.25m to £2.69m. The Centre is largely celebrating — though would love to see salaries fall even further. Despite their name, the High Pay Centre believes that high salaries are immoral in their own right.

But just because someone is rich, doesn’t mean another is necessarily poorer. Salaries are not zero sum games. Obsessing about the pay of those at the top end of the spectrum does not increase pay for those at the bottom.

Those critical of high pay for CEOs have always said that the high pay isn’t justified – that their remuneration is a factor of indulgence or board chumocracy. But high salaries are a reflection of the value that CEOs bring to organisations. They remain closely tied to the success or failure of those companies and the value that top executives provide. The fact that salaries have dropped so markedly in a time of financial stress and business hardship is a reflection of that. Even the High Pay Centre admits, through gritted teeth, that this reduction in salaries over the last year shows that “the system [is] working as intended”.

Covid has seen businesses pushed to the brink, with firms of all shapes and sizes facing existential challenges, life-changing decisions, and huge strategic risks. The companies with talented, assured, and experienced CEOs, secured through large salaries, have been able to weather the storm and continue providing the goods and services that keep our world running.

As Andy Verity, BBC economics correspondent points out, it’s not all about company success – sometimes it’s more than the bottom line that determines a CEO’s pay. Their reputation, image, and vision for the company will all play major roles in determining how much they are paid. When investors recognise the potential – or the risks – associated with each CEO, their pay is adjusted accordingly.

At the same time, we know that CEO quality is important to company success because investors react to changes in leadership, like when Angela Ahrendt’s departure from Burberry wiped almost half a billion pounds off stock market value in one morning. And for someone who oversaw an increase of £5 billion in value in just 8 years, surely a lush pay packet is deserved. Even more so when it is ultimately only a fraction of value added (0.16%, to be exact).
Companies that want to see similar success to Burberry will have to be willing to pay for it – as seen when Ahrendt moved to Apple for an even bigger bonus. We do not take exception to any other business for compensating their staff competitively in order to attract high-quality employees, why so at the highest level?

The strange begrudging of well-off CEOs reeks of jealousy, as it does absolutely nothing to improve the position of those at the bottom of the pay scales. Instead of poring over the pay packets of those in charge, campaigners would do well to examine the ways in which we can increase pay for all, by creating and encouraging successful businesses, a flexible economy, and genuine economic growth.

Covid will present long-running challenges for business, but this is our chance to truly go for growth and see wages expand at all levels of business. Making it easier to set up and run businesses, cutting excessive red tape that holds back innovation, re-examining business rates and National Insurance, fixing a housing crisis which holds back labour market flexibility would all go a long way to boosting prosperity across the board.


Written by Morgan Schondelmeier

Morgan Schondelmeier is Head of Development at the Adam Smith Institute.

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