The Swiss have just turned down a proposal in a referendum to limit executive pay to no more than 12 times the salary of the lowest paid worker in the same company. This is the second time the Swiss have voted on issues of executive remuneration. In March by contrast they voted to curb big bonuses and to ban so-called “golden handshakes and goodbyes”.
John Lewis Partnership – a chain of department stores owned by its employees – recently announced a new rule that no boss can earn more than 75 times the lowest paid partner, as they refer to employees. Indeed the Partnership’s managing director Andy Street argued that this was reasonable on the grounds that it compares favourably with many FTSE 100 companies where the gap is wider.
Clearly he, like most employed directors, doesn’t get the point.
It is no wonder that public anger is growing at the ever-widening remuneration gulf between those at the top and the rest.
Most people, including employees and the public, have a sense of fairness. They know the difference between a reasonable and unreasonable pay and bonus package. Indeed most people recognise the need to reward effort, ability and outstanding performance. But managers, however senior should be incentivised and rewarded for their contribution to a company’s medium and long term performance, not for manipulating short-term profits to boost their bonus.
Perhaps applying the Swiss 12:1 ratio to executive salaries and imposing a requirement to commute anything above into equity may help promote executives as leaders by restoring some lost integrity.
What do others think?