Crazy Numbers: Average FTSE 100 CEO Paid 183 Times Average British Worker

The outrage du jour comes to us courtesy of the High Pay Group. That is, it comes from a small, self-appointed, group of Guardian affiliated leftists who are permanently affronted by the very existence of capitalism. Their observation is that the bosses of the largest companies on the London stock market make very much more than the average worker in Britain. Something which no doubt comes as a great surprise and shock to many. Sadly, their little statistic doesn't in fact have any relevance at all to the UK economy: largely because the stock index they're looking at has very little relevance to the UK economy. They're just playing with numbers in order to try to generate some outrage.

Here's one report of the news:

The average pay of a chief executive in leading companies is almost £5 million - 183 times that of workers, a new study has revealed.

The top 10 highest-paid chief executives (CEOs) were paid over £156 million between them in 2014, prompting fresh calls for action to curb executive pay.

And another one:

According to data from the High Pay Centre, a think tank set up to look at the widening income disparity at British companies, the average FTSE-100 CEO earned 4.96 million pounds ($7.8 million) in 2014. Average pay was 4.13 million pounds in 2010, about 160 times that of a worker.

The gap between the pay of senior executives and the people who work for them is becoming increasingly scrutinized by politicians in the U.K. and the U.S. A survey by the AFL-CIO union in the U.S. found that the CEOs of 350 Standard & Poor’s 500 companies made 331 times more than their employees in 2013, up from a ratio of 46-to-1 in 1983.

The British situation is a little different from the American one. Because the stock index they're using, the FTSE 100, really has very little to do with the UK economy. As here:

The FTSE 100 generates about 80pc of its revenue from overseas

To take a little example, consider Antofagasta , one of those companies in that FTSE 100. 99% of revenues come from outside the UK. Which isn't all that much of a surprise, it's a copper miner in Chile. The stock is listed in London partly for historical reasons (long connections between the Chilean minerals sector and London) and partly simply because London is the centre of the global financial industry. But almost none of its business or revenue have anything at all to do with Britain. And it's really rather difficult to see why the pay at a Chilean copper miner should have any relationship at all to the pay offered to the average Briton. Actually, having thought about it for a bit more, it's not just rather difficult, I find it impossible to think of any reason at all as to why there should be a connection.

The same would apply to Fresnillo (100% non-UK revenue), Weir Group (97% non-UK revenue) and so on and on. And 80% of the entire index's revenue is non-UK: so there's really no reason at all as to why there should be any connection, is there?

And, of course, it's not just that the vast majority of the business is not UK based: nor are large numbers of those chief executives. These levels of pay aren't even, at least not in the volume that the High Pay Centre is complaining about, contributing to inequality in the UK. Simply because the people being paid these sums are also not in the UK in many cases.

It's a non-story.

And we can test this as well:

Finally there is a bit of tax reform that I have long advocated. I have suggested, and the TUC has supported the idea, that no corporation tax relief should be provided on any payment made in excess of ten times median pay by any company to any person in the UK. Average pay (and I am not sure if this is the median or mean: the ONS do not say so in this release) is £488 a week including bonuses, or £25,376 a year. So tax relief on all pay over £253,760 would not be given right now: call it £260,000 for ease.
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Let’s assume there are four executive directors per FTSE 100. Let’s then assume the other three all earn half what the CEO does i.e. £2.48 million. For each of them the corporation tax cost of my proposal would be £444,000. The cost per company assuming no-one else was paid above £260,000 (which is way wide of the mark in many cases) would be £2,272,000, or £227 million across the FTSE 100.

Now that liberates some zombie cash for social purposes. Would anyone like to suggest what that sum might be used for?

Well, that proves it, doesn't it? If Richard Murphy has a plan to reduce this gross inequality then we know that the entire set up is simply phantasmal. That's a metric that hasn't failed us yet nor do we expect it to.

And, as ever, Murphy manages to come up with a non-answer to a non-problem. Because of course not only is all this inequality and inequity not happening in the UK economy, it's also not true that a company has to be a UK domiciled company to be in the FTSE 100. And if you're not a UK domiciled company then the UK tax system has no effect upon what you do, how much you pay people, nor the tax bills associated with all of that, outside the boundaries of the UK. So, to take one obvious example, Shire Pharmaceuticals (Irish based and Jersey registered) would not be affected by such a scheme. Further, it would be a reasonably trivial scheme for any and every member of the FTSE 100 to shift domicile (recall, the European Union insists on complete freedom for a company to shift domicile without penalty) so as to escape from such strictures.

And let's be honest about this, shall we? The underlying complaint is that the managerial executives are really greedy people. So, if they could get away with making sure that their incomes were not reduced then they would. Thus, we would expect such a tax scheme to lead to redomicile. And that, in turn, would mean those companies entirely moving out of the UK tax net.

So, umm, what is this increase in tax revenue of which Murphy speaks? And to think that he is the economics guru for our likely alternative Prime Minister, Jeremy Corbyn....