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From the FT's Lex blog



Bosses - are they worth it? A series of corporate-world disasters over the past decade - the internet bubble, Enron, banks - suggests that a lot of executives are overrated.



Whether they are overpaid, however, is more a matter of dispute. Tuesday's report from the U.K. High Pay Commission is the latest to conclude that top executives' pay is too high and out of line with that of employees. But prescriptions for addressing the issue do not give enough weight to the constituency that should actually change things - investors.

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The commission, an independent body, found that UK executive salaries have risen by up to 4,000 per cent since 1980, compared with a 300 per cent rise for ordinary workers. The pay of BP's chief executive is 63 times the company's average today; at Barclays, it is 74 times.



The difference 30 years ago was 17 and 14, respectively. The report is weak on international comparisons. But other surveys have found that, for the highest-paid executives, the multiple in Japan is about 45 times and in the U.S. is about 300. The trend across Europe varies widely, but is broadly similar to the U.K., though the latter is distorted by the rich rewards of the City of London.



The global financial crisis has put executive pay in a harsh light; it is now a subject of fierce debate across the world. But before populism and statutory regulations take over, it is shareholders who should really be stepping up - after all, they own the companies.



You don't like the fact that 40 per cent of Goldman Sachs's revenues went to paying its staff last year? Just sell the stock. The problem is that the fund managers that own the majority of listed companies are also overpayed. So the best an average investor can hope for is a better alignment of interest. That means transparent benchmarks related to share price performance, not fuzzy, manipulable metrics such as earnings growth. If you can't beat 'em, join 'em.



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