The murky politics of boardroom pay

The idea of an international market for CEOs has since been used ad nauseam to justify high CEO pay. But there is little evidence to support it.One recent study found that 80% of CEO appointments in the Fortune Global 500 were internal promotions and only four CEOs had been poached while they were CEOs of another company in a foreign country. There is some evidence to suggest that this makes economic sense. CEOs promoted from within seem to perform better than external recruits.

Whether UK senior management has improved relative to their international counterparts since the 1980s is a moot, and untestable, point. The Chairmen’s Club does, however, appear to have been successful in ensuring that the lion’s share of improvements in company value and productivity have gone to those at the top. The irony is that this seems partly a consequence of elite collective action – which when practised by conventional trade unions is claimed to price their members out of work.

Wage inequality not only undermines the consumption of core goods and services, which keeps the economy on an even keel, it also de-legitimises the very system that rewards the rich. The logical conclusion is that the government should use everything at its disposal to control excessive pay: regulation, the tax system and further lobbying reform. Perhaps it might start by ignoring the pleas of various business groups currently lobbying against the planned increase to the UK’s minimum wage.

Source: The murky politics of boardroom pay

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