By Maximilian Clarke

Prime Minister David Cameron announced last weekend that his government were likely to introduce measures to cap executive pay to prevent it growing still further in a way disproportionate to the broader economy.

As unemployment and inflation continue to erode the confidence and spending power of much of society, executives’ remuneration continues to grow, with the head Xstrata mining, Mick Davis, last year scooping a purported total of £18.5 million.

The result, argue the Institute of Directors, has been a growing public resentment of boardroom excesses which has undermined the legitimacy of UK business, prompting government to vow to take action.

This immediately sparked debate, with conservatives and libertarians saying that executive pay within privately owned companies, no matter how excessive, is down to the board and shareholders and is not the responsibility of government.

Others, however, lauded the Prime Minister for what they argued were his efforts to improve pay equality and therefore social cohesion. Adding their intellectual weight to the debate is Kevin Green, Chief Executive of the Recruitment and Employment Confederation (REC):

“This is a real issue and politicians from all sides now agree that action must be taken. It's difficult to defend FTSE chief executives' pay rising by 49 per cent in the last year while most workers faced pay freezes or very low increases.”

However, he pointed out that executive roles are some of the most demanding jobs in our society, and we need the best people leading our largest businesses if the country is to get out of the current economic situation. The very top end of the executive labour market is highly completive and it is essential that boards and chairmen retain the ability to attract the best talent available to these critical roles.

Kevin added:

“There is a clear link between good management and leadership and superior performance. So the link between company performance and executive pay must be strengthened and become much more transparent. High pay for failure is never acceptable and this is what understandably upsets many people.

“The final point was that Government must think carefully before legislating in this area and should consult business extensively to ensure they get this critical issue right. The REC and its Association of Executive Recruiters will play an active role in providing input and ideas to the next phase of the consultation process.”

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