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Blood-letting and the widening pay gap

  • August 20th, 2011

For centuries some of the world's most well meaning people killed those they set out to help, by cutting veins and draining their blood when they were ill, on the theory that there was something in blood that harmed people, so it would help to ensure there was less of it. If they did not get better after losing the first bowl of blood, then more was taken from a fresh vein.

Brian Gaynor  shows himself to be a worthy blood-letter in todays's Stuff story on the widening pay gap between senior management, and ordinary workers. Twenty years ago he was among those demanding that the Minister of Justice, Doug Graham, force companies to disclose executive pay.  He succeeded. As reported today he shows no reflection on why the outcome has been the opposite of what he expected. He urges more disclosure, to ape the Americans. Whether or not that foolishness is compounded, we are already heading to where the US is. The US pay gap between the big company CEOs and the average low level workers in their employ, has reached as much as 100x. The Stuff report says ours is now 50x.

I agree with Helen Kelly that these multiples are a "moral question of our time".  She is right to complain.

I warned of the likely outcome when the law was passed, and have come back to the issue a number of times, including  here and here. I've advised boards in fights with senior executives over pay and employment terms. I've sat with my fellow directors when CEO and senior remuneration policy is being determined. I've seen how dissociated their pay has become from supply/demand market. pricing for the expecutive. Instead, because it is public, it has become a statement of where the company pitches its ambitions against its competitors. How many Boards are going to state publicly that their ambition for their company is to rank in the bottom quartile of their peer group?

In the1980s that dissociation took off in the English speaking world, coinciding with the new laws forcing disclosure. Here in New Zealand we foolishly took director pay out of the tiny list of things that must be decided by shareholders, and forced companies to make their top pay policies public.

Expect the widening gap to remain a source of puzzlement and ill-feeling for the foreseeable future, because I can't see any politician who will have the courage to return the decision on executive pay disclosure to where it belongs, the shareholders.

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