Should we really care that a chief executive is paid millions for running a private company? Well, the British government thinks we should.
On Monday, the UK’s ruling coalition announced a series of proposals designed to curb the burgeoning incomes of high-earning, bonus-happy execs whose salaries continue to balloon, despite the fiscal crisis.
The government said they would make remuneration packages more transparent, they would put more power in the hands of the company shareholders and they would ensure a more diverse mix of people attending the committee meetings that decide who gets paid what.
It’s a curious move for a party so keen on laissez-faire free market business. And a patent acknowledgement of the inequity of it all. It’s triggered a musing on the philosophy of fairness. Everyone from Jeremy Bentham and Ludwig Wittgenstein to the Greek myths have been cited.
For a hard-headed economist’s view I phoned a friend. Donald Robertson, a Cambridge don, gave it to me straight; “The stock economists answer,” he told me, “is that if a private company thinks it’s sensible to pay an employee huge sums of money, that’s a judgment they are far better able to make than a civil servant. And if a private company persistently pays an employee more than they are worth, then that company will soon go bust.”
He also added that we should never have allowed utility banking and investment banking to become so intertwined.
According to that view, we should have designed a financial sector where banks can go bust easily, with depositor protection limited to very heavily regulated institutions that would handle our pay, cash or ATMs, but it would not be allowed to invest in risky assets.
In short, tinkering with top salaries is beside the point. It’s the fiscal equivalent to complaining about Wayne Rooney’s transfer fee. Why not hike the salaries of the unsung workers of our societies? Bin men, for instance. They are the people we cannot do without.
But an occupation’s worth seems to be defined by its remuneration. In South Korea, teachers with 15 years of experience make a salary that is 221 per cent of the country’s GDP per capita. In the United States it’s just 96 per cent of the same ratio.
What we pay the average person should be more important – and a more accurate reflection of fairness. Politicians need to find a more holistic answer to fixing the flawed and unfair game of capitalism.
The meritocracies around the world should consider this before they go after the billionaire whipping boys.