“The average age at death among the people of the West End [of London] is 55 years; the average age at death among the people of the East End is 30 years.” So wrote American author Jack London back in 1903.
We have come a long way since then but the gulf between rich and poor in the U.K. is once more becoming one of the most hotly debated issues of the day.
Look no further than the growing disparity in pay between Britain's business elite and the rest of the working population for evidence of what the Trades Union Congress (TUC) calls “the new inequality”.
The chasm between the haves and the have-nots in Britain will soon reach a level not seen since the start of the 20th century, according to the High Pay Commission, which will publish a damning report on Tuesday.
Recent trends
Recent trends are illuminating: In 1978, the head of British Aerospace was paid 29,000 pound sterling. By 2010, the head of its successor company, BAe Systems, collected a package worth nearly 2.4 million pound sterling, a rise of 8,000 per cent.
That compares with an increase of 556 per cent in median male income over the same period.
But why has boardroom pay skyrocketed in recent years? Critics point their fingers at the pay consultants appointed by remuneration committees at top companies, describing their relationship as being akin to a cartel.
Pay consultancies
There are now half a dozen specialist pay consultancies in the City (of London) whose sole job is to advise remuneration committees how much executives should be paid and how to structure their pay packages. The consultants' fees are kept private but are in line with those charged by accountants and lawyers.
In September, City investors called for them to disclose their fees to shed more light on this little understood sector.
Deborah Hargreaves, chair of the U.K. High Pay Commission, said: “The pay consultancy industry has been spawned by an attempt by companies (under pressure from shareholders) to link pay with performance, but there is no discernible evidence of a connection between pay and performance.”
Former Liberal Democrat Treasury spokesman Matthew Oakeshott said: “These greedy bosses sit on each other's remuneration committees and wave through each other's offensive pay rises.”
But David Tankel, former principal of consultancy, Hewitt New Bridge Street, defends the role of pay consultants.
“We don't make recommendations on what people should be paid. We discuss what data they want to use as comparators, but at the end of the day, the decision doesn't rest with us.”
Survey
A recent survey by Income Data Services found senior directors at FTSE-100 companies last year enjoyed a 49 per cent pay rise, earning on average 2.7 million pound sterling. That is 113 times the national average of 24,000 pound sterling for a worker in the private sector, where salaries have risen 3 per cent in the last year.
Long-term schemes
Hargreaves said: “People are getting increasingly impatient, businesses have got to put their house in order, or risk solutions being imposed from above.” Critics of the system say the upward path in executive pay is also a result of convoluted, long-term schemes that pay out in shares, introduced in response to complaints about high levels of basic salary. That has opened the door for pay consultants to dream up complex ways to create sophisticated bonus packages that are impossible to understand.
Race to the top
Brendan Barber, TUC General Secretary, said: “What we have are highly paid consultants advising highly paid non-executives what to pay executives who are well remunerated. It's a race to the top with discussions turning on average pay for peer group executives.
Because people always want to be paid more than the average, it inevitably means generous pay rises.” Barber called for employee representatives on boards to curb pay excess.
At least 10 staff representatives sit on director panels in Germany, where executive remuneration is a less emotive issue.
— © Guardian Newspapers Limited, 2011
