Fat cats: do they deserve their pay?

In 'The Week' 5/11/11, the article "Fat cats: do they deserve their pay?" quotes Philip Hensher, writing in 'The Independent': "Do I care if their salaries are 60 times greater than mine? I do not". Thanks for that Philip. I do care that you don't care, though. You should read 'The spirit level' (see www.equalitytrust.org.uk), and maybe you would start caring!

Hensher continues "paying them less wouldn't make anyone else better off." This is a rhetorical and obviously true point. We know that paying people more makes them better off (to be equally obvious) and if The Equality Trust is right, more equal income leads to fewer social problems.

Hensher works out that reducing former Tesco top man Terry Leahy's salary from £1m a month to more like £10K a week (how would he have coped?) would only save enough to pay all the other 260,000 Tesco employees a further £3.68 a month. I agree it's not much, but as Tesco's say, "every litle helps".

I don't know what a typical Tesco salary is, but let's say it's £20K pa. This means that even with Hensher's putative reduction, Leahy would have been paid for 2 weeks what the typical employee gets in a year - the order of 25 times as much. At £1m a month, Leahy was getting the equivalent of 50 years' typical salary in just one month. Was he really as effective as 600 typical employees?

We don't know from 'The Week' (nor I asume from 'The Independent' about the other high earners at Tesco, who would logically have to take a pay cut to ensure that they weren't out earning their boss.

Lies, damned lies and ...

In a letter to 'The Times' (reprinted in 'The Week' 5/11/11), professor of economics J R Shackleton (University of Buckingham) wrote: "the top 1% of all earners pay a quarter of all income tax. Cutting executive pay would mean the rest of us paying more tax."

I can only say it's a good job that Shackleton is not a professor of logic or arithmetic. Cutting the pay of the top 1% of earners would indeed mean that they would pay less income tax at current rates - a key caveat he (or at least the letter) omits, but there is nothing to stop the top 1% of earners continuing to pay this proportion of the total income tax rake even on reduced pay. Also, if the executive pay excised from those heap topping executives were distributed amongst the earners of less money, they would pay more income tax (at current rates) simply because they earned more.

To get a little more sophisticated: I don't know if Prof Shackleton has read 'The spirit level' and/or the associated materials from www.equalitytrust.org.uk/. If he has, he would know that the research finds that there are far fewer social problems in more income-equal societies . The fewer social problems there are, the less tax would need to be taken to pay for ways of containing those problems.

Shackleton trots out the standard argument that "the smartest of them [ie executives] will leave to earn unregulated income elsewhere". Part of me wants to say 'OK then, bye', but if the thesis of  'The spirit level' is correct and these executives transplan themselves to another unequal society (or make it more unequal by their transfer into it), they will live have to live among social problems there, too.

Shackleton also comes up with the astounding "once we politicise top company pay it will never be opportune to raise it." What?- Oh no, we can't have that, can we!