Bosses’ pay

Reading the English papers on Sunday (courtesy of my iPhone and excellent local WiFi this trip to Spain!), I was struck by all the articles about business-bashing, business leaders’ pay, disparity of earnings, etc.

I’d really like to write a learned treatise on the subject but I’m not sure I can get that far right now. Let me satisfy myself with a few observations.

Firstly, during the recent discussion about the RBS boss’s bonus, I heard some callers on LBC. What struck me was that they weren’t upset about “payment for failure”. They just didn’t seem to understand how anyone could be worth that much money – not just the bonus; but the whole level of salary.

So, the question is: are we beginning to see the complete break-down in the generally muddling-along social contract that we have in the UK? Yes, some people earn more than others but that was not challenged on a regular basis until now. There was a sort of acceptance of the status quo.

In fact, I think it is difficult to justify from first principles what to pay someone. There are measures such as the number of people you manage or the size of budgets; but they fail for “individual contributors”, people like researchers and developers, who don’t manage others but create value themselves. Then, how about people like internal auditors whose role is more about helping others to protect value? Of course, you may be able to measure the value that person creates but even there it is difficult: what value does X create on X’s own? How much credit should Y get for helping out or A to W for implementing the ideas that X claims? And how do you value the work of nurses and carers and teachers – and public service employees, even bureaucrats who help our world run more smoothly?

The paradigm for executive pay is that they are paid to match the world market, to attract talent so that they can maximise value for shareholders. I wonder how much of the current outcry and debate arises because firstly, people don’t think that shareholders are the only people whose value should be maximised; and, secondly, because so many people work for bosses who are not good leaders or even good managers so the question arises: why are they paid that much money to make that sort of a mess of things? I could do it that badly!

Finally, I am struck by the contrast between the justifications of bankers and senior businessmen, saying that to drive growth, development and high performance we need to be willing to pay large reward the leaders of industry, and the wise sayings of management coaches and business leaders of all kinds (Steve Jobs was one recent example) who say: find what you love to do, what intrinsically motivates you to strive and work hard; don’t look for proxy rewards like money! Which is right?

Confused, of Islington! 🙂

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