The right sort of greed shapes the pay debate

The pillars of capitalism remain the only show in town. To somehow throw out its key strand of incentive-based compensation on a notion as wooly as fairness is simply unworkable

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London's Square Mile
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Jonathan Bracey Gibbon
On 10 January 2012 10:28

In Oliver Stone's only decent movie, Wall Street, prior to his Greed is Good diatribe, anti-hero Gordon Gekko lambasts the board of the failing Teldar Paper for holding less than 3 percent of the stock, while drawing huge salaries and perks.

In the context of the pay debate, the speech warrants revisiting:

"Our trade deficit and fiscal deficit are at nightmare proportions. In the days of the 'free market' when our country was a top industrial power, there was accountability to the shareholders. The Carnegies, the Mellons, the man who built this industrial empire, made sure of it because it was their money at stake.

Today management has no stake in the company. Altogether these guys sitting up there own a total of less than 3 percent and where does Mr. Cromwell put his million dollar salary? Certainly not in Teldar stock, he owns less than 1 percent.

You own Teldar Paper, the stockholders, and you are being royally screwed over by these bureaucrats with their steak lunches, golf and hunting trips, corporate jets, and golden parachutes!

Teldar Paper has 33 different vice presidents each earning over $200,000 a year. I spent two months analyzing what these guys did and I still can't figure it out."

A quarter of a century on from 'Wall Street', the FTSE is apparently full of Teldar Papers. Only it isn't Gordon Gekko going to war with overpaid directors, but David Cameron. But for Dave, Greed is still Good so long as it's the right sort of Greed. It has to be fair.

“Excessive growth in payments unrelated to success; frankly ripping off the customer and the shareholder, is crony capitalism and is wrong,” said the PM to Andrew Marr on Sunday morning.

Cameron is going large on what should be solid ground for the hapless Miliband as the High Pay commission posits the dodgy notion that executive pay went up by 50 percent last year as average wages were unchanged. This is a statistic that bears no close scrutiny, but who cares? With 200 or so increasingly whiffy, but nonetheless happy campers still hovering around the edges of the news agenda and, presumably, occupying swing voters as much as St Paul's, we are now told that executive pay is a problem society must address.

In taking on the issue of pay Cameron is looking to inject fairness as the central theme of the debate, with Vince Cable waiting in the wings to provide the small print later this year. But can fairness and free market capitalism ever be happy bedfellows?

The Teldar Paper speech certainly crystallises the alleged evils of corporate cronyism, and calls for 'transparency' now litter the debate; that, and a simplification of bonus structures. Of course we already know how much supposed fat cats have been awarded for failure, so transparency is surely already there. Euphemistically speaking, transparency means control.

Recently-introduced share-based incentive schemes are already subject to shareholder vote. And that's really what's needed. Cameron seems clear that he's happy for executives to get rich on success and therefore should have no problem with the interests of executives dovetailing with those of shareholders via share-based incentives.

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