We shouldn’t fret about CEO pay

Commenting on today’s news that executive pay has risen by 11% in the past year, Sam Dumitriu, Head of Research at the Adam Smith Institute said:

“We shouldn’t fret about CEO pay. CEOs command massive wages because they are massively important to the firms that employ them. Take Angela Ahrendts, when she left Burberry to move to Apple it wiped £536m off Burberry’s share price. When one individual can be so important to a firm, then it’s no surprise that shareholders are willing to pay top dollar to get the best.

“Today’s news is part of a long-term trend. As businesses face increasingly rapid technological change and stiff international competition, CEOs have become more important. Research looking at the impact of unexpected executive departures (e.g. private plane crashes) on firm values has found that CEOs have become much more important over the past few decades.

“There is a growing body of evidence highlighting the impact of management on productivity. If we foolishly rush in and cap CEO pay, we risk chasing away the best managers to Europe and the US. That would be bad news not only for the millions of Brits who hold shares through private pensions, but also workers who might see their firms lay off staff as they fall behind to better-run international competition.”

To arrange an interview or further comment please contact Matt Kilcoyne via phone (07584778207) or email (matt@adamsmith.org).