There is much that is unimpressive about Ed Milliband. He sounds like Sylvester the Cat with a bad head cold and he looks sufficiently like his more famous brother to be off-putting.
He does, however, have a point with his criticism of capitalism, not in the detail - in so far as there was any, with its ill-defined definition of predatory behaviour - but in making the criticism in the first place. There is widespread unease, even disgust, at the way in which our economic system now seems to operate. That fatal combination of rapacity and incompetence, which characterised creatures such as RBS’s Fred Goodwin or Northern Rock’s Adam Applegarth, seems to point to a larger truth: that there’s something rotten in the state of capitalism, and not just in banking. The problem lies not in the system as a whole: in the operations or the market; of the laws of supply and demand; or in any of the other fundamentals. No, the problem lies in one of capitalism’s key tools: the public limited company.
Times are hard, people are losing their jobs, many, who stay in employment, do so only by accepting a pay freeze or even a pay cut. We are, however, emphatically not all in this together. Last year, the average earnings of FTSE 100 chief executives rose by a third. Not that there’s anything new in this: for years now, those who control the levers of power in capitalism have operated in a parallel universe where different rules of remuneration, pension and terms of employment – particularly as regards dismissal – operate.
Let us take, for example, Sly Bailey, chief executive of the news group Trinity Mirror. She joined as chief executive in 2003, on a salary of £500,000 and a guaranteed bonus of £250,000. The idea of a guaranteed bonus is so breathtaking in its audacity, that little needs to be said, we can only stand and admire. In fact, any kind of bonus for someone earning £500,000 is pretty extraordinary. If you’re earning that kind of money, what extra effort are you going to put in for the company (if you’re one of those unfortunates that only qualifies for a bonus of the unguaranteed variety)? Are you going to get in earlier? Work the odd weekend? Presumably, were it not for that bonus, you couldn’t be arsed going the extra mile, even for half a million quid.
Since Sly’s appointment, Trinity Mirror’s share price has headed South – down by 90% - while her salary has headed resolutely in the opposite direction. In 2009, she received a two thirds increase in her total remuneration package, which took it to £1.68m. This was despite a 41% fall in pre-tax profits for that year, the closure or sale of 30 titles and 1,700 job losses.
Well, one might say, that’s nobody’s business but the shareholders. If they choose to reward failure to such a spectacular extent, it’s their money and they are free to do with it what they want.
Except that it’s not their money is it? The pension funds and other investment vehicles that own the shares and approve these levels of remuneration are not what might be termed the ultimate shareholders, the people who invest in the pension funds or trusts which buy and hold the shares on their behalf. No, these people get no say.
Why the pension funds vote for such unjustifiable levels of remuneration is a mystery. To argue that there is some sort of market rate and that extraordinary talents would go elsewhere is plainly a self-serving nonsense. Coco the Clown could have done Fred Goodwin’s job for a fraction of his salary and perhaps without ruining a once great bank.
According to her Wikipedia entry, Sly Bailey is ‘one of the most powerful women executives in Europe’. Why would some young pension fund manager seek to make an enemy of her? Vote her the 66% increase; who knows she might be in a position to do you a favour one day, and, what the hell, it’s not your money. This perpetuates a cosily corrupt system, a magic circle in which all are well rewarded and where failure – even failure as monumental as Fred Goodwin’s – will still allow you to walk away with a king’s ransom.
This situation is so dangerous because, first, it corrodes all faith in capitalism and, second, because there is no easy or obvious answer. Legislation would be hard to frame, difficult, if not impossible to enforce and would inevitably have unforeseen and unfortunate consequences.
The only solution I can see lies in a voluntary system: in ethical investment funds which will undertake not to invest in any company in which any employee earns more than 20 times the salary of their lowest paid colleague. Maybe such companies would fail to attract chief executives of sufficient calibre to give shareholders a decent return. Or maybe they would turn out to be a far better punt that Trinity Mirror has been since 2003.