Monday, March 02, 2009

Executive remuneration: the opposite of a virtuous circle

Of course, one of the reasons why bankers are now deeply unpopular is the monopoly money salaries that were being bandied about.

But throughout the rise of traders and bankers into the big money league, the United Kingdom has seen Executive salaries massively outpace wage inflation amongst most of the rest of the workforce.

Personally, I place much of the blame for this into the hands of the City. An ever more short-term approach to investment means that companies are under greater pressure to achieve better results quickly, and the churn of senior executives accelerates in response to that. It's a bit like football management in that sense.

Therefore, a senior executive will want higher compensation to take on the enhanced risk of unemployment and reputational damage. That, sadly, is what the free market is all about.

Part of that compensation package will be designed so as to provide for a future beyond employment, and the tax benefits that arise from investing money in a pension fund are undeniable. For Sir Fred Goodwin, for every £3 that RBS put in, the government put in £2. Now, if my memory serves, a limit was recently placed on the size of a pension pot, but such a limit was not retrospective.

It just shows that, if proof were ever needed, that for every action there is an equal and opposite reaction, and that economies are more complex than most people, myself included, can really comprehend.

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