In the mid-1990s, shortly before the dotcom bust wiped billions of dollars off stock markets and sent the financial world into a painful tailspin, Alan Greenspan, an American economist who at the time was chairman of the US Federal Reserve, made a speech in which he used the term “irrational exuberance”.
Decades on, it’s become somewhat of a catchphrase for those reflecting on what we could have done better. It refers to asset prices – stocks, bonds and commodities, for example – being dramatically overvalued and not accurately reflecting the fundamental soundness of an economy. People have used it to describe the sky-high valuations achieved by Silicon Valley’s darlings – Uber, Snap and Lyft – despite many of them never having turned a profit. And after more than a decade of climbing higher and higher, some people are starting to use it when discussing global stock markets. In essence, it’s bubbles.
“We’re not taking the potential repercussions of excessive CEO pay seriously enough: it doesn’t only skew the dynamic within an organisation, but it jeopardises trust and creates huge, damaging rifts between the haves and have-much-much-lesses.”
Closer to home I’m increasingly convinced that there’s another appropriate use for the term: the amount of money we pay our bosses. Salaries are ridiculously inflated and perhaps have never before been so unjustified.
The Chartered Institute of Personnel and Development, the UK’s leading professional body for HR management, in collaboration with the High Pay Centre think tank, found in a new report that while the average annual pay of FTSE 100 CEOs fell by 13% in 2018, the bosses of Britain’s largest publicly traded companies still make more than 100 times an average UK worker’s yearly salary which, by the way, is just shy of £29,600. Some 43% of the CEOs in question actually saw their pay increase between 2017 and 2018. The median pay check for the top dogs last year, was £3.46million.
Paying a small number of individuals a six or seven-figure salary while some of their own workers scrape by on little more than minimum wage is scandalous at the best of times. But against the backdrop of an ailing economy – an economy which could quite easily be in the throes of a recession in a few months’ time – it’s just ludicrous.
In 2018, the FTSE 100 – the index of companies presided over by this well-heeled rabble – fell 12.5%, representing its largest annual decline in a decade. Since then the picture has only bleakened.
Earlier this month, official figures showed that the UK’s gross domestic product – a common measure of the economic health of a nation – declined by 0.2% during the second quarter of 2019. That was the worst quarterly performance since 2012. Scores of economists have said that this is a sign of things to come, particularly if the increasingly likely scenario of a no-deal Brexit materialises.
And yet all the while, in the corner offices of the country, the Pellegrino-sipping captains of industries remain busy planning their next Caribbean holidays, car purchases and Michelin-starred jaunts.
The fact that it would take an average UK worker 117 years to earn a CEO’s annual salary is iron-clad evidence that corporate Britain is failing when it comes to governance. Most of us will agree that greater pay equality and more diversity would make for a better society, and yet a FTSE 100 CEO is still more likely to be called Steve or Stephen than to be a woman. The same is true of those called Dave or David. In fact, even at the very top echelons of the pay structure, gender inequality persists: while women make up 6% of FTSE 100 CEOs, they earn just 4.2% of total pay.
There have been piecemeal efforts to change the picture, but it’s evident they’re not working. Companies are required to put the amount they plan to pay their top managers to a binding shareholder vote during their annual general meeting at least once every three years. But analysis from the High Pay Centre shows that between 2014 and 2018 not a single FTSE 100 company pay policy was rejected by shareholders. They might as well not have bothered.
We’re not taking the potential repercussions of the practice of excessive CEO pay seriously enough: it doesn’t only skew the dynamic within an organisation, but it jeopardises trust and creates huge, damaging rifts between the haves and have-much-much-lesses. You can only imagine what that does to employee morale. Unhappy workers are less committed workers and therefore less productive workers. The bottom line ultimately takes the hit.
As Britain teeters on the brink of Brexit, there might be few things we can do to avert a full-blow economic slump. But we’d be wise to remember that at the very core of business are humans who want to feel trusted, valued and treated fairly. It really is as simple as that.
Josie Cox is a freelance journalist.