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Law for Business

Knowhow - guidance - precedents

06 SEP 2012

Is it time for the Fat Cats to hit the Diet? Part 1

It's not just the bankers who continue to have a hard time over their level of pay and bonuses; company executives are once more in the firing line as the public consider that the fat cats of industry are already far too fat and it's time they hit the diet.

Sir Stuart Rose (ex CEO and Chairman of Marks & Spencer) recently commented that the differential between pay at the top and pay at the bottom should be addressed and companies had to be able to justify to their staff the reason people were being paid the rates they are paid. He considered that most people were happy for those running successful businesses to be paid a reasonable wage and a market rate for it, provided they understood the reason. What they hated most was pay for failure. He said ‘We never paid a bonus at M & S during my time there unless every member of staff received a bonus. At least there was equality of happiness or equality of misery'. Some could say it is easy for him to take this stance given he was earning a package in the region of £750,000 pa as Chairman of M & S.

Public and shareholder pressure is increasing in this area and was in part responsible for the stripping of Sir Fred Goodwin's knighthood; Stephen Hester was forced to turn down his bonus; others face pressure to decline or reduce their bonuses. Some leaders have fought back. Sir Terry Leahy (former Chief Executive of Tesco) voiced his view in The Sunday Telegraph in March that Britain had ‘a cultural problem with wealth creation'. Again, easy for him to say.

The issue of top pay has been considered by a number of bodies including the Department for Business, Innovation and Skills which issued a consultation paper at the end of 2011 and the independent High Pay Commission which reported in November 2011.

Vince Cable (he who referred to elements of the financial sector as ‘spivs in suits') has already started talk of possible reforms.

With many companies (including banks) sending out their annual reports and accounts to shareholders in the coming months, this is a topic which is unlikely to go away. In Part 2 ‘New Diet for Fat Cats', we'll look at some of the proposals mooted for addressing this inequality.

Kate Anthony Wilkinson

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