Exec pay is crying out for a race to the bottom

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are his own.)

By John Foley.  LONDON, Jan 3 (Reuters Breakingviews) – Romantic novelist
Jilly Cooper wrote in 1979 that society divides neatly into two
groups: the Guilty and the Cross. She was referring to Britain,
but the phenomenon is now global. Corporate bosses with
eight-digit pay packages rank among the Guilty. If they want to
placate the increasingly empowered Cross, they could tender
their services more cheaply – or even free.

So far, the trend has gone the other way. Twenty years ago,
the average FTSE 100 chief executive received 1.4 million pounds
in today’s money. This has now increased to 6 million pounds.
Martin Sorrell, boss of advertising group WPP, earns
3,000 times the median income of a British family. The United
States just voted in a billionaire as president, so corporate
bosses there are probably safe from too much scrutiny. But their
European peers might want to act before they are forced to by
the sort of tough new rules on executive pay that Britain and
the Netherlands are both debating.

They could do worse than copy an American invention: the $1
CEO. That label described corporate chieftains who took a
pittance of a salary during World War Two. Today’s company boss
could go one better and work just for the love of their job. No
pay, no shares, just prestige and the sense of a job well done.
Staff and shareholders would be happy, not least because there
would be more to go around.

The “Free-EO” should not be confused with those corporate
executives, mostly in the tech sector, who already earn $1 or
less but take home masses of share options, or own large stakes
in their companies. Tesla boss Elon Musk and Facebook’s
Mark Zuckerberg eschew proper pay not because they
consider themselves the Guilty but because they are already
rich. Deutsche Bank’s ex-boss Anshu Jain advised the
company for free after he resigned in 2015, but that was a
punishment more than a sacrifice.

Genuine altruism comes with a catch. A chief executive who
works for nothing might have no incentive to do more than a
mediocre job. But there’s an answer to that too, this time from
China. Some Chinese banks in the 19th century used to take
executives’ family members as human collateral, to be used as
indentured servants in the event of misbehaviour. Then again,
any modern executive who takes that package probably doesn’t
need such inducements.

On Twitter https://twitter.com/johnsfoley

– For previous columns by the author, Reuters customers can
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(Editing by Swaha Pattanaik and Liam Proud)


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