Covid-19 has transformed Rishi Sunak into the magic money pixie; a Tory chancellor who’s throwing around more cash than his shadow John McDonnell dared to even dream of doing when the right was screaming “he’ll turn us into Venezuela”.
Desperate times and all that, so I guess it’s hooray for Rishi Chavez?
But all this raises a question: Should the cheques Sunak is poised to write really be blank ones?
When megabucks CEOs line up at his door with their caps in their hands, should he be filling them up with the taxes paid by their drivers, their PAs and their cleaners? Not to mention the taxes that will be paid by their drivers’ children, their PAs’ children and their clearers’ children, who’ll be charged with servicing the UK’s debt interest.
We have, of course, been here before, 10 years ago when the banks were bailed out with few conditions being attached to the money that flowed their way. As a result, they were able to use a chunk of it to keep their top tier employees in the style to which they had become accustomed while branch staff were losing their jobs.
Reading some of their remuneration reports in the aftermath left a decidedly nasty taste in the mouth and created a toxic well of resentment which is still polluting this country.
Against that backdrop, the High Pay Centre has published a timely report with some good ideas for how to avoid the mistakes that were made back then. It wants any bailout money to come with strings. Sunak should pay attention.
For a start, it says the public should receive a stake in any bailed out business, with the government receiving full shareholder voting rights. This actually happened during the banking crisis. Trouble is, the government did not get full value for the money it put in and failed to do much in the way of stewardship with the stakes it found itself with (taxpayers still have a chunk of RBS).
This time, it must do more. That means, says the Centre, demanding fair, rather than excessive, pay at the top including the introduction of a pay cap.
The Centre would set the maximum ratio at 10:1 between the highest-paid and the median average paid employee at bailed-out companies.
I would get quite a kick from watching the reaction of corporate Britain should the government agree to that. You would probably still be able to hear the gnashing, wailing and caterwauling in the middle of the Pacific Ocean.
Thing is, if we taxpayers are paying the piper, why shouldn’t we call the tune just as other shareholders do?
Ten times the national average wage for those in full-time work, which is £36,611, gets you to £366,610. That’s pretty good money and would fund a pretty good lifestyle. It’s more than twice what the prime minister makes, which is just over £150k. Yes, yes, I know, the current occupant of No 10 Downing Street looks vastly overpaid even at that level.
Think that a 10:1 ratio is too restrictive? The employee-owned John Lewis already operates a cap on top pay. It is set at 75 times what the median non-management partner earns. Former chairman Sir Charlie Mayfiled was on a £1.4m package in 2018, which was less than the maximum he could have earned under the cap.
For the boss of a bailed-out business, however, such a package could be seen as extremely generous, even too generous.
Perhaps Sunak could look at something in between the two? In combination with another recommendation; that bailed out businesses should commit, within a set timeframe, to pay the real living wage to those at the bottom of the ladder. The real living wage, as opposed to what the government calls the national living wage, is set by the Living Wage Foundation to reflect the cost of a decent basic standard of living.
Of course, if you impose a cap on the CEO’s pay, one way of increasing it would be to increase pay at the lower levels. Now you’re talking!
Everyone wins from that. Except the shareholders? Au contraire. Employers that have adopted the Living Wage says it pays for itself through improved staff retention, lower rates of absence and better quality work.
One thing companies can and should do right now is halt executive bonuses, as suggested by corporate governance watchdog Pirc. Otherwise, we’re going to have a situation where CEOs are getting huge bungs at a time of a national, indeed a global, economic and social crisis. Given the hardships some people are already suffering, that’s a very bad look.
Back to the High Pay Centre. It also wants bailed out companies to be required to commit to Fair Tax Mark accreditation, which, given where their money is going to be coming from, shouldn’t be subject to debate. Ditto, with their agreeing to worker representation on boards, and trade union recognition because, again, it’s the workers who are, one way or another, being asked to pay for the bailouts.
Finally, companies should be required to make a commitment to invest in research, training and innovation, while at the same time imposing a moratorium on share buybacks and unsustainable dividends. This would help address the UK’s pressing need for more business investment.
Business leaders that do these things and steer their companies through the worst, could get a gong, says the Centre. I’d be more or less ok with that. It’s what happens with civil servants.
What I wouldn’t be ok with is business leaders taking the cash and effectively flipping off the country that’s providing it to them in the way that the banks basically did.
That’s an outcome that could stoke a lot of anger, anger that could ultimately prove to be dangerous.
As such, it’s in politicians and business leaders’ own self-interest to think very carefully on what the High Pay Centre has said here.
It’s simply untenable to go back to the same bad old business as usual when this is done.
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