It isn’t “anti-business” to oppose high pay for mediocrity

One Society’s Larissa Hansford argues that businesspeople don’t know the first thing about what is and isn’t “anti-business”.

 

Larissa Hansford is a campaigns assistant for One Society

The prime minister yesterday became the latest in a long line of politicians and directors to launch an attack on “anti business rhetoric”. David Cameron is right that business certainly can and should be a force for good, but some have suggested that even criticising its more harmful trends is anti-business.

Top pay is a case in point.

RBS chair Sir Philip Hampton, for example, argues recent government rhetoric against excessively high remuneration in the private sector dampens business morale and reduces inward investment:

“We need to recognise that businesses have got to succeed and that when they do so people can get very well paid.”

George Osborne weighed in too:

“At stake are not pay packages for a few but jobs and prosperity for the many.”

And CBI director-general John Cridland has attacked the ‘anti-business’ climate, saying:

“If we don’t reward success, business cannot walk the walk.”

But business success and controlling high pay are by no means mutually exclusive. It is possible to argue against stratospheric levels of pay and be pro-business at the same time.

There is strong evidence that excessive executive compensation is associated with firm under-performance. A US study has shown that executive pay is positively correlated with bad governance, which is in turn related to poorer company performance.

This effect is likely to be strengthened by the tendency for a large gap between highest and lowest paid workers to be accompanied by reduced productivity in the workforce as a whole. ‘

As the Hutton review pointed out, a reduction in the ratio between top and bottom pay tends to bring gains in morale and productivity, as well as improved mental health, physical health and dramatically reduced absenteeism.

Partly for this reason, increasing low pay (yet another issue that tends to be painted with an ‘anti-business’ brush) is in fact also likely to act as a boost to businesses.

Not only would raising lower levels of pay reduce the high pay ratios that act as a barrier to increased productivity but, because incentives tend to be more effective for tasks that involve only effort than for those that include a cognitive element, they tend to be more productive at the lower end of the pay scale.

A growing group of politicians do now recognise that fair pay is good business.

Shadow Business Secretary Chuka Umunna pointed out in a recent speech that:

Just as relative rewards matter as a basis for social comparison among executives, so they matter to other employees too. They matter for employee engagement, and their sense of identification with company goals”.

Vince Cable has recognised that excessive pay is problematic, and last October the PM himself was questioning the wisdom of excessive remuneration, saying:

“Boards have got to think when they are making pay awards, is this the responsible thing to do?”

Nor should we assume that all businesspeople support excessive pay inequality. Ex-Greggs CEO Sir Michael Darrington said that attacking high pay as anti-business is:

“…a smokescreen and a lot of bollocks – it is the greed of the people [at the top] that is anti-business.

As Sir Michael said, it is those who are attempting to highlight the negative impacts of excessive pay who are “pro-business and anti-greed”.

See also:

Rewards for failure continue at the top of industryAlex Hern, February 23rd 2012

All in it together? RBS fat cat “in line for £7m payout”. Seven. MillionShamik Das, January 27th 2012

The government has the power to stop Hester’s bonus, they just don’t want toBen Fox, January 27th 2012

Progressives need a positive vision for ScotlandEd Jacobs, January 26th 2012

Questions multiply over financial status of an independent ScotlandAlex Hern, January 20th 2012

34 Responses to “It isn’t “anti-business” to oppose high pay for mediocrity”

  1. Alon Or-bach

    It isn’t “anti-business” to oppose high pay, writes @One_Society’s @LarissaHansford: //t.co/Ut1jF6cu

  2. Susan Michie

    It isn’t “anti-business” to oppose high pay, writes @One_Society’s @LarissaHansford: //t.co/Ut1jF6cu

  3. Political Planet

    It isn’t “anti-business” to oppose high pay for mediocrity: One Society’s Larissa Hansford argues that businessp… //t.co/CwiK6h2J

  4. Dario Llinares

    It isn’t “anti-business” to oppose high pay, writes @One_Society’s @LarissaHansford: //t.co/Ut1jF6cu

  5. Darren Johnson

    It isn’t “anti-business” to oppose high pay for mediocrity @LeftFootForward //t.co/vXSXuUJd

  6. Scott Redding

    It isn’t “anti-business” to oppose high pay, writes @One_Society’s @LarissaHansford: //t.co/Ut1jF6cu

  7. Pulp Ark

    It isn’t “anti-business” to oppose high pay for… //t.co/jsB3bm5Z #Sustainable_Economy #big_business #bonuses #muslim #tcot #sioa

  8. leftlinks

    Left Foot Forward – It isn’t “anti-business” to oppose high pay for mediocrity //t.co/qILVB4mG

  9. Anonymous

    Rewards for failure should be out.

    So how are we going to claw back cash from Ed Balls and Gordon Brown for leaving the country in such dire straights? They received a pay off on leaving office. That is a reward for failure. Blair is still being paid from the public purse whilst dodging tax with one of those Civil service limited companies.

    But what about you. You want to punish rewards for success. Shouldn’t those bankers who made millions in profits within the nationalised banks get a percentage? Clearly those that made the even bigger losses should get none.

    So what is it

    What percentage of the profits should go to the workers, and what percentage should go to the capital owners?

  10. Rowland Paul Hill

    Left Foot Forward – It isn’t “anti-business” to oppose high pay for mediocrity //t.co/qILVB4mG

  11. Karmic Tweets

    RT @leftlinks: Left Foot Forward – It isn’t “anti-business” to oppose high pay for mediocrity //t.co/NX2HpSbB //t.co/z2FSx2HB

  12. Inside Croydon

    RT @DarrenJohnsonAM: It isn’t “anti-business” to oppose high pay for mediocrity @LeftFootForward //t.co/NxP461Np

  13. Newsbot9

    How are we going to claw back your gains from your anti-societal profiteering?

    And you’ve answered your own question for yourself – capital, capital, capital. Never mind the results.

  14. Selohesra

    Calm down dear

  15. Larissa Hansford

    It isn’t “anti-business” to oppose high pay, writes @One_Society’s @LarissaHansford: //t.co/Ut1jF6cu

  16. Michael

    It isn’t “anti-business” to oppose high pay for mediocrity I Left Foot Forward – //t.co/mWUOXQXe

  17. Patrick McGuire

    It isn’t “anti-business” to oppose high pay for mediocrity I Left Foot Forward – //t.co/mWUOXQXe

  18. One Society

    Opposing high pay isn't 'anti-business', write's One Society's @LarissaHansford: //t.co/3VZh10Du

  19. Rebekah

    RT @leftfootfwd: It isn’t “anti-business” to oppose high pay for mediocrity //t.co/pQug3eLx

  20. JC

    I believe that we need to have a full discussion on how to reward workers for the work they do and for what they achieve. It is no use tinkering around the edges. This would include ideas such as how a profit sharing systems might work, should bonuses for performance be paid in share options to be redeemed at a later date, how to include entrepreneurs who own a business outright, what to do with the creatives (Adele, Damian Hirst etc).

    As for the public sector, I seem to remember a recent survey by the BBC asking people what they thought certain public sector workers such as teachers and nurses should be payed.

    Note that this should also include the full value of pensions, and possibly some element of job security. We should also address the disparity between the same job in both the public and private sectors.

  21. Other TaxPayers Alli

    It isn’t “anti-business” to oppose high pay, writes @One_Society’s @LarissaHansford: //t.co/Ut1jF6cu

  22. JPIT

    Opposing high pay isn't 'anti-business', write's One Society's @LarissaHansford: //t.co/3VZh10Du

  23. Matt Townsend

    It isn’t “anti-business” to oppose high pay, writes @One_Society’s @LarissaHansford: //t.co/Ut1jF6cu

  24. TheCreativeCrip

    It isn’t “anti-business” to oppose high pay, writes @One_Society’s @LarissaHansford: //t.co/Ut1jF6cu

  25. Thomas Byrne

    “…a smokescreen and a lot of bollocks – it is the greed of the people [at the top] that is anti-business.“ //t.co/SiB8jWvu

  26. Dànaidh Ratnaike

    It isn’t “anti-business” to oppose high pay for mediocrity //t.co/rhPUGnVO @leftfootfwd

  27. If RBS’s board is not held to account, it could become a new Leyland | Left Foot Forward

    […] also: • It isn’t “anti-business” to oppose high pay for mediocrity – Larissa Hansford, February 24th […]

  28. Billy Boy

    @DavidCameron "It isn’t 'anti-business' to oppose high pay for mediocrity" //t.co/xXdqaW1C #conservatives #IMF #anonymous

  29. Stephanie Mather

    It isn’t “anti-business” to oppose high pay, writes @One_Society’s @LarissaHansford: //t.co/Ut1jF6cu

  30. NeilCB1

    RT @leftfootfwd: It isn’t “anti-business” to oppose high pay for mediocrity //t.co/MJkgHuvT

  31. Knut Cayce

    RT @leftfootfwd: It isn’t “anti-#business” to oppose high #pay for #mediocrity //t.co/bkAbBzKQ Execs just not worth it!

  32. Steelypip

    There are several decades of research by psychologists and behavioural economists that show paying performance-related bonuses reduces performance, reduces creativity, promotes bad risk-taking and poor decision making. The higher the bonuses being offered the worse the effect. This should be shouted from the rooftops whenever the topic of bonuses for executives comes up.

    The exception to the above is for physical labour that requires little or no cognitive input – paying workers on a production line a bonus for the number of items produced can work to increase output.

    Read “Drive” by Dan Pink and “The Upside of Irrationality” by Dan Ariely for information on the research.

  33. Look Left – “A mess... unnecessary... setting the NHS back”: Another attack on the health bill | Left Foot Forward

    […] debate comes as more and more examples of corporate greed and undeserved bonuses emerge; as Left Foot Forward reported on Thursday: A double dose of rewards […]

  34. Vince Cable's efforts to moderate executive pay under attack | Left Foot Forward

    […] in thousands of companies, and so do not have the time to micro-manage anyone. See also: • It isn’t ‘anti-business’ to oppose high pay for mediocrity 24 February […]

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