CEOs are getting 120 times as much income as workers

The end of the first week of the year is always a slightly strange one. Reality bites after the over-long festive break. It is a frenzied few days of catching up on stalled projects, making fresh plans, firing off endless emails – and totting up bills for all those parties and presents. Yet for a few people, there are at least no financial worries. The working year may have barely begun, but those pin-striped people running the country’s biggest companies have already pocketed the annual median salary of £28,758 collected by their fellow citizens.

This is not just the likes of Sir Martin Sorrell, with his astonishing annual package of almost £50m for running an advertising outfit. According to the High Pay Centre and human resources body CIPD, it took just three days for top British bosses to take home as much as a typical worker earns all year. The mean pay packet for a FTSE chief executive is £4.5m, which is a 120-1 ratio to that of the average worker despite a slight fall. Do they really think they are 120 times more valuable than their colleagues? Especially when headhunters claim another 100 people could fill most of these roles just as ably and that many are “mediocre”.

Another study that just emerged from a Belgian business school revealed these multi-millionaire business chiefs do better than any others in Europe based on pay ratios. Only French and German executives come close to matching their Croesus-like rewards for running companies – although no doubt British bosses would prefer comparison with the even more outlandish sums seen in the United States. Yet on top of the lavish salaries, we still see grotesque greed such as the bonuses being handed out at house builder Persimmon, where three top executives are collecting £200m after the firm exploited government efforts to expand a stymied market.

The Persimmon bonus scheme stinks. Such payouts show an unacceptable face of capitalism – although given the red tape that entangles planning, they can hardly be blamed on the free market. Chief executive Jeff Fairburn can now cash in the first half of his £100m bonus at a time when housing shortage is among Britain’s most pressing problems. These vast rewards are almost like a gargantuan state benefit, given how they take advantage of taxpayer-funded subsidies through the Help-to-Buy equity loan scheme intended to help stimulate building.

No surprise to see the property firm’s board stuffed with non-executive directors from places such as banking, finance and other giant firms. Whatever their qualities – which look questionable given such largesse – these people represent a world that could not be further removed from the fiscal concerns of most British citizens, not least those millennials unable to afford a decent home. The chairman and head of the firm’s remuneration committee have both quit but this is nowhere near enough to salvage a situation that stains an entire sector. Given abject failure of corporate control and waste of shareholder money, the entire board should be booted out.

It is worth noting the Belgian study also found minimal correlation between higher executive pay and better performance. But the Persimmon scandal is symptomatic of a wider problem. Theresa May has warned obscene corporate payouts threaten to rip apart the country’s social fabric. She is right – which is why our beleaguered prime minister’s backtracking on the issue is so distressing. It is, after all, one key factor in the fury against elites that fostered the Brexit insurgency, even though the impact will backfire on struggling communities that backed the bogus claims of prosperous Leave leaders.

Consider another study from the fag end of December. The Resolution Foundation disclosed that real pay remains below its peak before the global financial crash and may not recover to pre-crisis levels until 2025. The pay squeeze is set to get more intense before loosening, with poor families twice as likely to fear their outlook will worsen as richer households. So while city slickers collect huge bonuses despite sparking a financial, political and social whirlwind that lasts almost two decades, ordinary people see living standards still decline as a consequence of corporate avariciousness.

No wonder populism is finding such fertile terrain, especially as the rapid advance of technology pours fuel onto the fire. One hedge fund manager was reported to have paid himself £270m last year, which was £70m more than his fund made in profit. Britain, of course, is far from unique in confronting these issues that inflame resentments and divide society. The pay ratio for chief executives of the biggest American firms to average workers there is 347-1 in this era of wage stagnation. This helps explain Donald Trump and Bernie Sanders, who underscore how the response of many politicians on both left and right is retreat into past certainties.

How do we resolve this conundrum that is so damaging to capitalism, support for which is falling on both sides of the Atlantic? Some suggest a state-imposed cap, but this can backfire. Bill Clinton passed legislation to limit the amount companies could deduct from tax bills for their top five executives’ compensation – but this just encouraged abuse of performance-based deals and stock options, which became the new gravy train. Greater transparency encouraged some executives to demand more cash based on comparison with rivals. Shareholders often seem weak, despite a few encouraging revolts.

One solution to help shore up capitalism is far tougher global action on tax dodging, a related aspect of the corrosive culture of corporate greed. Another is to tackle rent-seeking cartels seen in places such as energy and rail. A third is to revive the sensible idea of binding annual pay votes among shareholders, foolishly dropped by the enfeebled prime minister. Perhaps imposing one or two ordinary people on boards – even selected by ballot rather than the City chumocracy – could help reconnect miscreant companies with their wider citizenship.

Stefan Stern, director of the High Pay Centre, argues that wider pay gaps are now seen by many as inevitable, for all the outrage, and the current system does little to stop it. He suggests employee representatives on remuneration committees and the publication of pay rations to possibly introduce ‘an element of embarrassment into the proceedings.’ But as he says, there are all too few examples of good behaviour in this sphere  since ‘in the end we’re in a battle with human nature.’  So maybe a dose of shame in this unruly social media age might help focus a few selfish minds?

These are simply suggestions. The rise in minimum wage has helped. And certainly I detect a change of mood among smarter minds in boardrooms, concerned by long-term consequences of over-inflated pay levels. For those of us that believe in the transformative power of capitalism and genuinely free markets, the issue of pay has become one of the most important issues of our age at both top and bottom of the jobs market. The combination of corporate fat cats getting successively plumper while millions of fellow citizens struggle in insecure jobs for wages that are  falling in real terms is combustible. Not just for capitalism, but for countries and political systems.

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Ian Birrell is an award-winning foreign reporter and columnist. He is also the founder, with Damon Albarn, of Africa Express.

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