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All change for the gravy train

2 March 2012

Neil Davies, TSSA's Policy Adviser questions whether we're starting to curb the culture of corporate excess

We've been banging on about bosses’ bonuses and the growing culture of corporate greed for what seems like forever! Yet when there was more or less full employment and most people got a decent pay rise it was perhaps something most of us could live with, albeit somewhat reluctantly. We didn’t like it, but standards of living were improving and nobody with the power to do anything about it seemed interested – things just drifted. Now, with soaring levels of unemployment, public spending cuts and falling standards of living impacting on most of society, the ‘us’ and ‘them’ nature of the crisis has been brought into sharp focus. We most certainly are not all in this together!

Over the past few months there does appear to have been a sea change of opinion. Criticism of corporate greed has become louder, with some politicians now prepared to reflect public anger and demand action.

At the end of January Royal Bank of Scotland chief executive Stephen Hester was due to get a bonus in shares of £963k on top of his £1.2m a year salary – 46 times the salary of an average employee in the UK. Following sustained pressure, it was Labour’s decision to put Hester’s bonus to a Commons vote that gave the RBS chief executive no option but to decline his bonus. The government resolutely refused to intervene – in a limp response after the event Chancellor George Osborne said it was a ‘sensible and welcome’ decision.

Then, closer to home, Network Rail’s directors came under similar pressure to turn down their massive bonuses. At least this time the Transport Secretary, Justine Greening, threatened to turn up at the company’s members meeting to cast her vote against the bonuses, but wrongly asserted that she lacked the power of veto. Chief Executive Sir David Higgins had been expected to collect a bonus of 60 per cent on top of his £560,000 salary. In the end NR’s bosses succumbed to the pressure, contributing the funds to safety improvement at level crossings.

Victory in these battles were encouraging, but the war on fat cat pay is far from being won. Even though Network Rail bosses turned down their immediate bonuses, they did not mention that if Higgins and fellow directors continue with the long-term pay and bonus scheme it could be worth £15.6 million over the next three years.

Dealing with quasi-public organisations like RBS and Network Rail hasn’t been at all easy. Think how much harder it’s going to be to play hardball with the hard-headed, hard- hearted players in the private sector. Surely the government have got the message and got tough on the company executives milking the current system for all its worth? Unfortunately not – its over- hyped response in January to the High Pay Commission’s dozen proposals to overhaul executive pay was seen by many as a wasted opportunity lacking in substance. TUC General Secretary Brendan Barber said ‘It’s very disappointing to see that ministers have spectacularly failed to make any significant changes to the status quo. Whilst the Business Secretary has announced a few welcome tinkers to the current boardroom pay regime, he has shied away from the big decisions on all of the major proposed reforms, from worker representation to company pay ratios and open advertising for posts on remuneration committees.’

With top executive pay running ever further away from average employees (from 47:1 in 2000 to 102:1 in 2011) the TUC have made a compelling case for worker representation on remuneration committees – something supported by Ed Miliband and Labour. Whether or not attitudes have changed for good only time will tell – but the mega- bucks pay culture that has built up over many years must be stopped and become as unacceptable as drink driving.
 

If you can’t beat them tax them!

Ending corporation tax relief for pay and bonuses worth more than 10 times average annual earnings (£26,200) could raise around £1.7bn a year if applied to the banking and financial services sector. A recent TUC report shows that over a third of employees earning over £250,000 a year work in banking and finance. The report estimates that around 81,000 people have incomes of over £262,000 (10 times average annual earnings) that come primarily from employment, including 29,000 people in banking and finance. The report finds that total pay on earnings above £262,000 – which the TUC believes should no longer be a deductible expense for corporation tax purposes – is around £6.8bn a year. Ending corporation tax relief on these earnings in the banking and finance sector alone would raise £1.7bn a year.
 

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