Sunday, March 06, 2016

The Fat Cats Get the Cream

Slashing huge salaries ‘would not hurt economy’, says a London School of Economics report as new analysis finds leading CEOs earn average of £4.6m a year.

Interviews with the top 10 international recruitment firms behind 70-90% of chief executive appointments in recent years found a consensus among so-called corporate kingmakers that levels of remuneration for the most senior executives are “absurdly high”. Headhunters claimed that, for every appointment of a CEO, another 100 people could have filled the role just as ably, and that many chosen for top jobs were “mediocre”. The market for executive jobs, however, has become so distorted that it would amount to career suicide for a chief executive to indicate that he or she would be willing to work for less.

One headhunter said: “I think there are an awful lot of FTSE 100 CEOs who are pretty mediocre.” Another added: “I think that the wage drift over the past 10 years, or the salary drift, has been inexcusable, incomprehensible, and it is very serious for the social fabric of the country.”

Max Steuer, reader emeritus at the LSE and author of the new research paper, Headhunter Methods for CEO Selection, published in the Journal of General Management, said there was little evidence that lower pay would see a “brain drain”, as has been suggested. “The idea that if their pay were lower, British executives could show up in New York and say we would like to have your jobs, is a little implausible. I think the best way of thinking about it is that performance plays very little role in the selection process. Contrary to people saying these chief executives are ‘unusually able’, we don’t find any evidence of that.”

Morrisons’ CEO Dalton Philips nearly doubled his remuneration to £2.1m in the year before he was sacked, while Tesco boss Dave Lewis received £4.1m – nearly three times the amount paid to his predecessor.

Stefan Stern, director of the High Pay Centre, said “Some top bosses, it seems, are keen to manage all their costs – except the cost of employing them.”

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