Most people believe pay and bonuses for top executives are “out of control”, according to a new study to coincide with a report which describes excessive high pay as “corrosive” to the economy.
A year-long inquiry by the High Pay Commission revealed today that the pay of top executives has soared by more than 4,000% in the last 30 years, undermining productivity and “damaging” trust in British business.
The report criticised “stratospheric” pay increases which have seen wealth flow upwards to the top 0.1% of people in the UK.
The study detailed the pay of Barclays’ top executive Bob Diamond who, the study said, earned £4,365,636 - 169 times more than the average worker in Britain today, and an increase of 4,899.4% since 1980 when the top pay in Barclays was just 13 times the UK average.
The chief executive in the part state-owned Lloyds Bank has seen his pay increase by 3,141.6% to £2,572,000 over the same period - 75 times the average Lloyds employee - when in 1980 it was just 13.6 times that of the average Lloyds worker, said the report.
Average wages in the UK today are a “modest” £25,900 - up from £6,474 in 1980 - a three-fold increase.
The commission called for a number of reforms, including a “radical simplification” of executive pay, putting employees on remuneration committees, publishing the top 10 executive pay packages more widely, forcing companies to publish a pay ratio between the highest paid executive and the company median, and making firms reveal the total pay figure earned by executives.
The commission also said a new national body to monitor high pay should be established.
The report, Cheques With Balances: Why Tackling High Pay Is In The National Interest, showed that decisions to award huge pay packages are set by a “closed shop”, shrouded in highly complex detail, effectively hidden from shareholders, staff and the public.
“Stratospheric increases in pay are damaging the UK economy - distorting markets, draining talent from key sectors and rewarding failure.
“There appears to be little truth in the myth that pay must escalate to halt a talent drain in executives. The growing pay gap between the top 0.1% and everyone else is increasing public disillusionment, damaging trust and fuelling the view that business leaders are in it for themselves,” said the report.
High Pay Commission chairman Deborah Hargreaves said: “There’s a crisis at the top of British business and it is deeply corrosive to our economy. When pay for senior executives is set behind closed doors, does not reflect company success and is fuelling massive inequality, it represents a deep malaise at the very top of our society.
“The British people believe in fairness and, at a time of unparalleled austerity, one tiny section of society - the top 0.1% - continues to enjoy huge annual increases in pay awards.
"Everyone, including each of the main political parties, recognises there is a need to tackle top pay.
“That’s why we are saying there must be an end to the ‘closed shop’ that sets top pay and that pay packages should be clear, open and published to shareholders and the public.”
A poll of more than 2,000 members of the public to mark publication of the report found that four out of five believed pay and bonuses for top executives were out of control.
Two-thirds did not think companies could be trusted to set pay and bonuses responsibly and most wanted Government action to make firms more transparent about the way in which they award executive pay.
TUC general secretary Brendan Barber said: “Top directors seem to think that austerity is just for the little people. This is not just unfair, but bad for the economy as this vital report makes clear.
“Many of the report’s recommendations - from allowing ordinary workers on to remuneration committees to give executives a much-needed dose of economic reality, to forcing companies to publish pay ratios between top directors and ordinary staff - can and should be implemented straight away.
“The truth is that the extraordinary transfer of wealth from ordinary people to those at the top is not just morally repulsive, but a key ingredient in the economic crash.”