4 January 2018

Why the fuss about fat cat pay?


Have you noticed how, over the past 12 months, Britain has become such a better place? Haven’t you seen the smiles on everybody’s faces as the scourge of our times, income inequality, falls? Well, you should have done, because according to figures released by the High Pay Centre today, or “Fat Cat Thursday” as they have termed it, FTSE 100 executive pay is falling.

In 2016, the average “fat cat” salary was £4.5 million, down from the previous year’s £5.4 million. Given the seriousness with which those complaining about high pay treat the issue, this must, just absolutely must, have made the UK a much better country.

I suppose those same moaners will just dismiss the quibbles made by us running dogs of the internationalist plutocrats. Such as, the FTSE 100 really doesn’t have all that much to do with the British economy. It’s a listing of companies, listed in London, not of companies working in the UK. Quite famously, 75 per cent of revenues to those constituent companies comes from outside our own economy. A number of them have no connection at all to the domestic economy, other than the amount they pay the London Stock Exchange for the privilege of people being allowed to buy and sell their stock in The City. So the actual relevance of the numbers claimed is difficult to see.

In any case, there is a good reason why CEOs are paid so handsomely. That’s because when they aren’t, and there is research to back this up, both corporate performance and the rest of the economy suffers. Japanese companies don’t pay as much as American ones; Japanese companies also have worse corporate performance. Yanks, you see, (and to a large extent, our own FTSE 100 CEOs) get paid on the basis of profit maximisation. This drives the long term performance of a company, maximising returns from the assets being employed.

But let’s leave these mealymouthed quibbles aside shall we? And celebrate along with the High Pay Centre. Fat cat pay has gone down significantly, in the very recent past. Thus, given the apparent iniquities of such high pay, this must surely have made our green and pleasant land hugely and vastly better.

Well let me allow a little bit of that disinfectant of sunshine into this debate. We’ve not seen any improvement in the rest of society – not even the slightest change – as a result of this narrowing of the pay gap. So, in fact, all that whining about the pay of 100 people only tenuously, if at all, connected to our domestic economy, doesn’t matter a damn.

Good, glad we’ve got that settled, so what other Shibboleths will we manage to disprove in the next 12 months?

Tim Worstall is Senior Fellow at the Adam Smith Institute