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

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