What is the right income level for bosses of the world’s largest companies? Greek philosopher Plato is said to have felt the incomes of the wealthiest Athenians should not be more than five times greater than those of the poorest citizens.
Management writer Peter Drucker suggested in the 1970s that anything above 20:1 was inappropriate, a view also espoused a century ago by John Pierpont Morgan, the US financier. George Orwell thought 10:1 was about right.
FTSE 100 chief executives’ average total pay in 2013 was 120 times the average earnings of their employees – up from 47 times in 1998, though down from a peak of 151 times in 2007, according to Manifest, the proxy voting agency, and MM&K, a consultancy.
The ratio of executive-worker pay at big banks often exceeds 100 times. Companies with lower-paid workforces sometimes have even bigger gaps: US chief executives at Walt Disney and Coca-Cola, for instance, are respectively paid 653 and 427 times more than the median pay of their employees.
The issue has arisen again because of Brussels’ oddly timed proposal for shareholders in listed EU companies to set the pay gap between executives and average employees, going beyond reforms introduced after hard-fought domestic debates in the UK, Germany and elsewhere.
Luke Hildyard of the High Pay Centre, a UK lobby group – who pointed out the historical views above – welcomed Brussels’ plans, but there was criticism from investors and business groups. Aides to Vince Cable, Britain’s business secretary, said comparing absolute pay levels could mislead: employers with many low-paid staff are likely to have a higher ratio than, say, the investment bank Goldman Sachs. UK reforms require companies to report the rate of change of employee pay against that of chief executives, which ministers think more effective.
While there is undoubtedly public concern about the way inequalities have widened in recent years, shareholders are more bothered about performance. They are growing more assertive on this, as seen at Barclays, where some are demanding changes after the bank raised bonuses by 10 per cent in spite of a one-third fall in pre-tax profits.
In Plato’s day, of course, there were no global companies to run. Ancient Athens was also dependent on slavery: Plato was said to own five slaves at the time of his death. Would these have featured in his calculations?
Not just dodgy loot
The Ukraine crisis is raising awkward issues for London. Last Monday, an official was pictured carrying a report for David Cameron, prime minister, advising that the UK should “not support, for now, trade sanctions … or close London’s financial centre to Russians”.
That prompted an angry article by Ben Judah for The New York Times, which accused Britain of being “ready to protect the City of London’s hold on dirty Russian money”. He added that the city’s consultants, art dealers, private bankers and hedge funders were “the oligarchs’ valets”. That is somewhat over the top. There may indeed be a case for sanctions but London’s prowess as a professional centre goes way beyond handling dodgy Russian loot, even if there is concern about how foreign wealth has driven up house prices.
It does, however, add weight to the search for more balanced growth within the UK: few countries are so dependent on their capital yet London’s dominance is increasing. That means unlocking the potential of cities such as Manchester, Birmingham and Leeds. It is slow work but, with a better balanced economy, the UK can afford to worry less about principled decisions that could damage London’s wealth.
Sarah Slocum, a technology writer, says she was attacked in a San Francisco bar for wearing a Google Glass computer device. A man ripped it off her face while a woman shouted: “You’re killing this city”. There is hostility from some to tech giants as their workers colonise previously low-income areas. Others fear Google Glass threatens privacy. Bars and coffee shops are reported to have put up signs banning the devices.
Ms Slocum is one of thousands of “explorers” across the world road-testing the gadget. Perhaps she was simply ignoring Google’s advice on how not to be a “glasshole”. Wearing the device in a bar at 1.30am sounds like asking for trouble.