Congress Slams High Pay Executives
3 Jun 2008
Paul Sweeeny, Congress Economic AdvisorPaul Sweeney, Congress Economic Advisor
This article originally appeared in the Irish Times on June 3, 2008. To view or download a copy of the recently-published Congress study on widening pay levels, visit:http://www.ictu.ie/press/2008/04/23/growing-wage-gap-highlighted-in-study/
It is likely that Willie Walsh will henceforth be shunned by many of his colleagues in the upper echelons of business. The former head of Aer Lingus has, after all, committed a virtually unpardonable offence against the mores and customs of this secretive and privileged elite.
Mr Walsh's 'crime' is to have refused to accept his annual bonus, worth some £700,000, by way of atonement for the debacle that was British Airway's move into the Terminal 5 facility. This despite having delivering record profits for BA, with shareholders receiving a dividend for the first time in many years.
In doing so, Walsh very publicly broke ranks and set an example many colleagues will not thank him for. In political terms, this is known as 'the threat of good example'.
Indeed, one wonders if his rather dramatic action might have informed the words of Taoiseach Brian Cowen when he called for pay restraint at senior levels in the private sector.
In a May 16 address - delivered just 24 hours after Walsh announced his pay cut - Mr Cowen urged the upper echelons to "observe a proper degree of responsibility when it comes to setting income levels, having regard to the wider demonstration effect which they inevitably will have."
Just two days previously, there was a far blunter conclusion delivered by Jean Claude Juncker, the prime minister of Luxembourg, who observed: "We believe the excesses of the captains of industry that we have seen in several countries are really quite scandalous."
The 'we' in question are the EU's Finance Ministers who met recently to examine these excessive levels of remuneration and their likely impact across the Eurozone. Mr Juncker demanded action in member states to "combat this social scourge", while the EU's Monetary Affairs Commissioner, Joaquin Almuni, spoke anxiously of "levels of remuneration that don't seem to reflect productivity at all."
Our own recent and very Irish furore over pay focused exclusively on politicians and the upper tiers of the public sector, following the high awards made by Review Body on Higher Remuneration in the Public Sector. And that was a valuable debate to have, in a society where some 71 percent earn less than €38,000 per annum. But it missed the bigger picture.
Senior public servants are now paid up to €300,000 a year, which is what the 'lesser paid' executive in the private sector earns. Those in the upper quartile of the private sector earn - or more accurately - are paid, up to €1.2m a year. A further layer above them enjoy packages worth up to €7 million a year. And yet another rung up the ladder are those approximately 500 individuals who enjoy incomes of anywhere up to €300m each year.
Within this elite grouping there are two further anti-social subsets: the so-called tax exiles who pay no tax here because they do not live here, but some of whom, very curiously, own and maintain splendid homes here. Others that do profess to live here avoid income tax by utilising the variety of tax shelters established by successive governments.
Thanks to pressure from Congress and others, the government is now introducing a minimum 20 percent rate for this cohort, but it begs the question: why should the richest pay just 20 percent when middle income earners pay at 41 percent?
Those resisting change argue that cutting excessive pay would restrict the market for mobile, senior executives. But this is precisely what the Dutch and German governments are currently considering, in reaction to public outrage at soaring remuneration.
Indeed, in the UK shareholders of banking giant HSBC are said to be in open revolt at its proposed remuneration policy, while almost 50 percent of Royal Dutch Shell investors recently voted against a company remuneration report for similar reasons, as did some 40 percent of shareholders in GlaxoSmithKline.
Many now realise that the remuneration process of top executives in the private sector is not an open market, as has been claimed.
If fact, the 'market' is often rigged - composed of self-appointing boards; inter-company directors' links; soft remuneration committees; compliant pay consultants; manipulated incentive performance plans and institutional shareholders who play along. Independent oversight is in short supply.
In Ireland it manifests itself in a business culture that can glibly demand pay restraint from all others, while only belatedly withdrawing support from an individual whom the Supreme Court found - almost 12 months ago - to have illegally acquired some €80 million profit for his company.
But perhaps all is not lost. Just as UK business leaders have the sterling example of our own Willie Walsh, perhaps Irish business can turn for comfort and leadership to Mr David Drumm, chief executive of Anglo Irish Bank.
On May 6, Mr Drumm informed readers of the Financial Times that: "If you go round the country, you'll find there is a big acknowledgement from the Irish public of the need for belt-tightening. We're realists. We knew it couldn't last for ever. Reform should be much easier in difficult times."
Mr Drumm's remuneration package was €3,274,000 in 2007. Thus his belt is exactly 99.2 times the length of that of the average industrial worker. If he is serious about belt tightening and pay restraint then he could do no worse than follow in the footsteps of the head of BA - and damn the social consequences.