Executive decisions: Esther Smith of law firm Thomas Eggar on Nick Clegg and executive pay

Posted on 6 Dec 2011 by The Manufacturer

There has been a lot of press coverage in the last day or so of Nick Clegg’s comments about executive pay and the “old boy’s network” he believes is still in play within commerce. 

I think most of us would share the sentiment that the pain of the current economy and austerity measures should be felt across the board, but actually I think the message in Mr Clegg’s comments is not about cutting levels of executive pay but ensuring adequate measures to protect against abusive systems, where companies or businesses cannot afford the levels of salaries they are committing to.

I don’t see why anyone would object to a company which manages to make a £1m profit in the current climate rewarding their top executives, who contribute directly to that financial performance, at an appropriate level.  However, it is the question of who determines “appropriate” that is the interesting part of this debate.  Most people think that anyone who earns more than them is over paid, so asking any individual on the street who earns the current national average wage, what is an appropriate level of pay for top executives is not a sensible way of approaching the problem.

Asking the shareholders of that business, who know or have direct access to its financial and management information, what is an appropriate reward or incentive for the top executives and what the business can afford to pay them, is a much more sensible approach.  I think this is where Mr Clegg is coming from, but his message seems to have got lost amidst his unfortunate references to “old boy’s networks” and other such inflammatory labels.