Should there be a ceiling on executive pay? | 53
isn't � how you deal with it is problematic to say the least. In
place of the price mechanism, it requires the substitution of
bureaucratic intervention. Are the bureaucrats qualified to make
such decisions? How do the bureaucrats decide what the ceiling
should be? Should it be an absolute amount, say �1m? Or should it
be some form of multiple, say a maximum of 25 times average
earnings or 30 times the salary of the lowest paid person in the
organisation? This is a minefield with no way out.
Moreover, the imposition of a ceiling distorts the price
mechanism and supply-demand balance as described above. If the
ceiling results in a reduced supply of the best global labour, UK
company performance is likely to suffer. There are no free lunches
here. Actions will have consequences. If professional footballers
still had a maximum weekly wage � as they did in the 1950s and
1960s � the Premier League would not have the best global talent
it displays today.
The football analogy can be extended to business executives
in other ways as well. If it costs a lot of money to buy-in talent,
there are strong incentives to nourish from within and train-up
from in-house. Also, in order to maintain team spirit, companies
have to be mindful of pay differentials and the fact that they can
have both incentive (aspiring to the multi-million pound pay
levels at the top) and disincentive (feeling de-motivated and
jealous of what others receive) effects. Balancing these
considerations is all part of the art of management.
Another key influence highlighted by the football analogy is
how the imposition of controls helps to create black markets.
Footballers found ways round the maximum weekly wage (the
original bung in a brown envelope) and income controls in the
1970s led to the expansion of company cars as a perk. Employees
and employers will find ways to by-pass the rules.
Supply and demand for executive labour

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