It’s time to relax about high executive salaries

This week Anglo American scrapped plans that would have seen its chief executive pay a huge bonus for the completion of its merger with Teck after a backlash from investors.

Shareholders may have reasonable objections to a scheme that would reward boss Duncan Wanblad with almost two-thirds of his long-term incentives package.

But those objections – valid or not – belie a deeper problem: London spends too much time worrying about executive pay.

A report released by the High Pay Center in August found that FTSE 100 executive remuneration had reached a “record high”, as if it were unusual for someone’s salary to be higher than the previous year.

The think tank complained that the average FTSE 100 CEO is now paid 122 times more than the average full-time worker in the UK – which is actually down slightly on the previous year.

An eye-watering amount. That is, until you look at the average CEO salary in the US S&P 500, which is more than double that, at a multiple of 285.

And that’s before you consider the $1 trillion prize that could go to the world’s richest man, Tesla boss Elon Musk, if the automaker’s performance hits certain ambitious targets. In comparison, Wanblad barely turns a dime.

Bigger fish to fry

Shareholders and advisory firms have every right to voice their disappointment with the poor quality of C-suite remuneration packages. If only they spent as much time observing poor quality bosses.

According to the Russell Reynolds CEO Turnover Index, while S&P executives have an average employee turnover of 8.9 years, which is generally consistent with their medium-term average, compared with the FTSE 250, chief executive tenures are among the “shortest globally” at less than 5 years, “the lowest we have recorded since we started tracking.” Something is wrong here and cutting executive pay won’t solve it.

For fear of stating the obvious, a £10m pay package given to the boss of a company turning over £10bn would represent less than 0.1 per cent of its revenue – in other words a rounding error. But a CEO’s influence on a company’s success – and the fate of its staff and shareholders – can be much greater.

However on the London Stock Exchange, remuneration reports are consistently among the most objectionable AGM reports, even if the number of opponents rarely exceeds a quarter of the total votes. Meanwhile, banks in London quietly raised management bonuses following the removal of restrictions imposed by the EU, a move that no one needed to decide.

Tight monitoring of executive pay would reduce inequality – but this can only be done by cutting the highest earners and not increasing the lowest earners. Now is the time for us to focus on making companies – and our economy – grow faster.