Greedy bosses with their snouts in the trough or hard-pressed directors with fraying cuffs and holes in their shoes. Last week, Vince Cable, the U.K.'s Business Secretary and self-styled scourge of the unreconstructed capitalist, said the country's bosses need a reality check. A survey by Income Data Services found that directors among the FTSE 100 group of top-listed companies had enjoyed average pay rises of 55 per cent . Quick off the mark, a small-business lobby group, the Institute of Directors, said that almost half of directors in unlisted and smaller companies had suffered pay freezes or pay cuts this year.
You might conclude, cynically, that the best course of action for a company director is to do an IPO immediately. A few whopper bonuses among bosses of big companies skewed the FTSE 100 result, notably Bart Becht, the chief executive of Reckitt Benckiser who earned more than £90-million ($146-million), mainly through share options. Outrage about pay differentials between workers and directors is making political waves. The fashionable idea is employee ownership - it was endorsed in the Conservative manifesto and the Business Secretary last month gave it momentum when he promised that 10 per cent of the shares in Royal Mail would be given to staff when the postal service is privatized.
The idea is that workers with a share (rather than just a contract) behave more like owners and less like grudging hired help. It's an attempt to better align the conflicting interests of capital and labour, to share the profits of enterprise more widely, to narrow the employee-management divide and create a happier company.
But it invites the question why employee ownership and the co-operative model is not more common. According to the British Employee Ownership Association, 2 per cent of businesses, based on revenue, are employee-owned. Two famous retailers, the John Lewis Partnership and the Co-operative Group, embody such principles. The latter, a grocery retailer, is having a small renaissance but it still lags in a weak fifth place to the titans of conventional capitalism in Britain, such as Tesco and Asda (Wal-Mart).
The exception is John Lewis, a true employee-owned enterprise, where the shares are held by a trust for the benefit of the 69,000 staff. It is the destination department store for the British middle class and one of the country's more successful enterprises. At John Lewis, the bonuses of senior managers, including the chief executive officer, are the same percentage of salary as the payout for staff working at the tills. Last time, the bonus was 15 per cent.
The salaries differ and that is the point: Managers still manage under employee ownership, even if the staff have a bigger voice and a share in profits. London-based Circle Health, a private hospital group founded by Ali Parsa (a former Goldman Sachs banker) is half-owned by its staff; everyone from consultant surgeons to cleaners has a share and a voice. The founder, however, is skeptical about the political fashion for employee ownership. It's all about good management, he says, and he acknowledges having lured his senior executives from some of Britain's top companies, paying them full rate. If John Lewis were to cease to be well-managed it would be taken over by private capital, Mr. Parsa predicts.
Too often in political debates about ownership, the talk is of incentives for the rank and file. Instead, we should debate proper incentives for management. For running one of Britain's top retailing groups, Charlie Mayfield, the CEO of John Lewis, earns a salary of £740,000 and a bonus of about £110,000. He doesn't appear to lack incentives to do a good job. What is the point, then, of the huge bonuses paid to FTSE 100 chiefs?
The bosses of listed companies often confess to being motivated by money but I think they are deluded; their real motivation is status and image. CEOs are too well-paid and have too little time to spend their pay - the purpose of the bonus is a badge of honour, stripes on a uniform; in short: ego. The notion that the bonus aligns the boss with the shareholder is tosh - if it were so, the CEO's bonus would reflect his risk, as with an investor. A CEO's risk is almost nil; these bosses are rarely sacked and they invest nothing but their labour.
At John Lewis Partnership, they have solved the problem by restoring a bonus to its best purpose as a profit share - a dividend payout in equal percentage to every shareholder. It reflects the notion that all staff share the same risk. If the ship goes down, their job sinks with it.
Carl Mortished is a Canadian financial journalist based in London.
Carl Mortished