Even the Institute of Directors is missing the point

It’s something of a pity when even those supposedly well informed and part of the system manage to miss the very point under discussion. Here the Institute of Directors, or at least their new head, manages to entirely whiff on the subject of CEO pay. For the important point at issue is not how much is paid but who decides how much is paid:

Pay for chief executives at Britain’s biggest listed companies rose more than six times faster than wages in the wider workforce in 2017, and the average boss’s pay packet hit £3.9m.

“If you start your own company and you run your own company, you can pay yourself as much as you want,” said Valeur. “If you run a company that other people’s money is funding, you have to be having a proper balance between what you get paid and what the company earns.”

That’s there should be a proper balance seems fair enough. Whether it’s at a founder led company or not actually. But that’s not the point at all. The actual thing to be discussing is who decides what is proper?

The correct answer here being the people doing the employing. Not the wider society, not the misanthropes with a grudge at the High Pay Unit, not the Chancellor and not the head of a business lobby groupuscule. Instead, it’s those employers. Which in the case of senior management and CEOs is the shareholders collectively. If they wish to pay whatever then it’s their money and whatever is the proper amount.

Sure, we can go on to discuss whether shareholders get to properly decide and all that but unless we get this more fundamental point straight first we’re never going to be able to discuss matters properly.

How much I pay my cleaner is a negotiation between me and the cleaner, a mutual discussion of hours, effort, labour supply and demand. How much a company pays frontline staff is the same conversation over the same points. How much a CEO is paid is again exactly that same conversation over exactly those same points with the shareholders as the employers being the people deciding what is right and proper as the conclusion to the deal.

Only once we’ve all grasped that can we progress. Progress to the correct conclusion that for the rest of us, non-shareholders and non-CEOs, it’s none of our damn business what CEOs get paid by shareholders.