The Chief Executive of Barclays Bank UK has announced today that he will waive his annual bonus, which could have been worth as much as £2.75M. He will not suffer huge hardship, as his basic salary amounts to £1.1M. What are we supposed to make of this? Should he be applauded for his forbearance? Or should we, as I believe, ask why it might be imagined that he was entitled to this extraodinary sum in the first place? In the book I document the way that the gap between average wages and top pay has grown massively over recent decades, and actually use the example of Barclays Bank (p.116) where the ratio between average pay and top pay grew from 14.5 to 75 between 1979 and 2011.
I don't have any problem with the existence of pay differentials, and I don't have any doubt that the job of CEOs of big companies such as Barclays is a difficult and demanding one. But I don't believe that any job, and any level of skill, is so great as to be worth so much more than someone else's job and skill. There are only so many hours in the day and only so much ability that any one person can have. Let's also clear out of the way two common arguments. It is not the case that these stratospheric payments are a reward for performance because as, again, I document in the book (p.123) executive pay has increased even as share price has fallen. Nor is what is at stake here simply the operation of a free market for talent: these payments are fixed by remuneration committees staffed by a merry-go-round of the same people who receive such exorbitant rewards.
Does anyone actually believe that in the period that senior executive pay has shot so far away from average wages the competence, performance and scarcity of those executives has increased? Was, say, Barclays, so much better run in 2011 than it was in 1979? No. As I said in my previous post on this blog, in a different context, this has been an outbreak of dumb luck not an upsurge of collective talent. Would these companies be so much worse run by someone paid, say, a miserly £500,000? And, in any case, irrespective of what they deserve, how much money does anyone actually need? Meanwhile, some 80% of the world's population subsists on $10 a day or less.
This is not the 'politics of envy' to use a rather hackneyed trope of those who defend such gross inequalities. And, given the relatively small number of people who earn these kinds of sums, it is not that reducing their rewards would enable any great increase in the wealth of others. No, the issue is about the terrible damage done to organizations and to society as a whole by such inequality, which tears apart the social fabric by so polarising life's experiences and chances both now and for generations to come. Actually the politics of envy is more in evidence in the repeated claims that those on welfare are living it up at taxpayers' expense, another socially divisive development. In the book (p.118) I quote official UK government statistics showing that benefit fraud in 2010 totalled £22M. In 2009, the world's top hedge fund manager earned £2.5billion.
In many countries now, including the US and the UK, there is a minimum wage. We need to adopt proposals that have been around for a while now for a maximum wage, too, fixing a maximum ratio between the lowest and the highest paid. Like all radical ideas, such as the debt jubilee, this looks impossible from within the prism of conventional wisdom and of course such proposals are greeted with critical scrutiny as if the arrangements that we actually have have arisen because they were first proposed then scrutinised and then adopted. In any case conventional wisdom has failed. The world we became accustomed to over the last few decades is manifestly broken. It won't be fixed by a few CEOs waiving their bonuses.