Capping executive pay


Earlier this week I was on Radio 2's Jeremy Vine Show arguing that the government should not cap executive pay in the City. I rather got the impression I was there as the villain of the piece – a worrying sign of the times!

Talking about executive pay in general, I said that whether or not a particular salary seems 'fair' is not the point. People are paid according to the market value of the goods and services they provide, and what you think of those goods and services is irrelevant. The government cannot possibly determine 'appropriate' pay accurately or justly, because any decision they make will necessarily be based on a political value judgement or personal prejudice. How much should a radio presenter be paid? Or a think-tanker? The government isn't capable of determining these figures, and haven't got any right to anyway.

I also pointed out that we need wealth creators, now more than ever, to get the economy going. And if you cap their pay, why should they bother? Or why shouldn't they just move to Shanghai or Dubai where they'll still be allowed to earn mega-bucks? I'm sure executive pay caps would be like manna from heaven for these emerging financial centres. Furthermore, I pointed out that the top 1% of earners in the UK pay 23% of our income tax. Left-wingers seem not to realize that someone has to foot the bill for all their social programmes.

We also discussed the specific topic of whether executives in the nationalized or part-nationalized banks should have their pay capped. Clearly, this is a more difficult area, since no one likes the idea of taxpayers' money going into the back pockets of incompetent fat cats. Nonetheless, I warned against knee-jerk populism. Now that the government is entangled in the banks (and I don't think they should ever have got in that position), it's important that they recover and that the taxpayers' gets their money back. If that means paying top-dollar for those staff who are still bringing in lots of business and making money for the companies, then so be it.