Miliband gets it right from top to bottom

Duncan Exley is the campaign director for One Society

The Labour leader’s ‘responsibility’ speech today was presumably calculated to appeal to both the left and right of his party together – taking lessons from Blair’s “tough on crime, tough on the causes of crime”. Making connections between the responsibilities of both the rich and poor also has the potential to challenge those who think that if the ‘other half’ are getting away with it, then they might as well do so too.

Miliband is also right to point out that tackling ‘undeserving rich’ has benefits beyond the political: the soaring pay of FTSE CEOs has little to do with ‘due desert’ and is damaging to both the economy and the performance of their own companies.

Data published last month showed that FTSE 100 CEO pay rose by 32% last year, compared to a rise of just 7% in the share price of their companies.

One might say this is an unfair comparison: performance pay comes after performance, so perhaps it is better to compare last year’s pay with the previous year’s performance of the companies’ shares. Unfortunately they actually lost value in that year.

Moreover, there is strong evidence – contrary to assertions about the necessity of paying CEOs ever-growing sums – that the overall performance of companies is reduced by high pay ratios. The majority of people at the wrong end of the ratio tend not to find the arrangement particularly motivating.

This is something that affects anyone whose pension fund or savings are invested in companies that underperform or spend excessive amounts on so-called ‘performance related’ pay. We also pay, as taxpayers, for the benefits that prop up the bottom end of high pay ratios. There is, of course, an argument that high earners create prosperity that the rest of us all share in, but this is weakened by the findings of Resolution Foundation research showing that median incomes appear to be ‘decoupling’ from economic growth.

Ed Miliband’s support for mandatory corporate pay ratio reporting is welcome. Such an initiative – already recommended by Will Hutton’s fair pay review, and already law in the US – is necessary, but it is not sufficient. This is why it is welcome that Miliband also referred to the questions of who sits on remuneration committees, and the role of investors in asserting the interests of companies as a whole rather than just those at the top.

Miliband has recognised that reporting requirements alone will tend to have limited impact unless remuneration committee members include those whose pay is not in the UK’s top 1 per cent. The role of remuneration committees would also be improved if their remit was extended to include the pay and performance of the whole company.

Moving beyond ‘more disclosure’ solutions will mean facing down opposition from people who have become rather comfortable in the current regime, but the prize is a UK plc that is more financially as well as socially responsible.