We are emerging now from a long dream-boom, built on a mess of financial trickery rather than on producing anything worthwhile. In the nineties and the noughties we didn't become more efficient or more productive -- we simply became better at being conned. All the "triumphs of deregulation" bragged about by market fundamentalists from Ronald Reagan to Tony Blair were built on a nitroglycerine-base of credit default swaps and subprime mortgages. The profits went almost entirely to the richest one per cent, while the bill after the burst goes to all of us.
It will take years to drive out all the delusions that cropped up in the mirage years. Even now, the bank lobbyists are fighting against re-regulating their sector -- with the money we gave them in the bail-out. A few addled market fundamentalists are still singing their old tunes, warning that regulation will lead to "disaster," as if the disaster hasn't already happened in the system they midwifed into the world.
But under the cover of this row, more bad ideas are trying to crawl out of the rubble unnoticed. One of the most dramatic changes in the fake years was the transformation in pay for people at the top. In 1980, the average CEO in America and the UK took 42 times the average worker's wage. By 2000, it was 531 times. Did CEOs become 12 times more effective? Or was this another trick of the boom-light?
The answer -- and the solution -- lies in an excellent book by the business writer David Bolchover called Pay Check: Are Top Earners Really Worth It? (Coptic, £11.99) It contains a stark contrast. In 2008, the CEO of the world's largest and most successful bank earned £150,000. His name is Jiang Jianqing, and he runs the Industrial and Commerce Bank of China. By contrast, the head of the most unsuccessful investment bank earned £22m. His name was Richard Fuld, and he ran Lehman Brothers.
How does the CEO class in Britain and America justify the gap? It has constructed what Bolchover calls the "talent ideology." Just as Rio Ferdinand is one of a handful of men who can kick a ball with great skill, just as Angelina Jolie is one of a handful of women who can pack out the multiplexes, so there is a handful of people who can be CEOs of large companies. They determine whether corporations rise and fall. They carry billions on their backs. For great talent, you must pay great cash.
But is it true? If you look at the biggest surges in CEO pay, they bore almost no relation to their "talent" at all. You can prove it on a graph. To pick just one example: CEO pay at the top of the global investment banks soared when the overall global economy was booming. Then, when the global economy sank, their pay dipped a little (although never even close to the level it had been before the boom). In truth, as Bolchover explains, "Whether he had talent or not was irrelevant. He just happened to be the head of a company that was performing, more or less, as it would have done with a different leader... He was not a hero [or] a dunce. He was just there." It's like paying the captain of a ship a massive bonus when the tide comes in, and then dipping it a tiny amount when the tide goes out, while he brags about his "genius" at every turn.
The same principle runs across many industries. The CEOs of oil companies can rake in half a billion dollars a year when the oil price is high -- but how is that their achievement? Conversely, after the crash, CEOs who could not have shown less talent -- who oversaw the destruction of their companies -- walked away with fortunes. No: "talent" was always a cover for seizing the most they could get. In practice, these men were setting their own wages, with little supervision from shareholders. Imagine you could go into work tomorrow and do the same. Wouldn't you be earning more than you are today -- or than you deserve? I hereby demand that GQ pay me $40,000 for this column, now, with a £20,000 bonus for meeting my deadline and an extra $10,000 for not torching their offices.
Yes, there is a real talent in being a CEO -- but it is not especially rare. Bolshover argues that there are a dozen people in the hierarchy of any large company who would be as plausible a CEO as anybody who gets the job, and dozens of contenders who could be poached from a competitor, and hundreds in other fields.
Of course, the very same people who told us the market would deal efficiently with subprime mortgages and credit default swaps are throwing up their hands and saying that the market will deal efficiently with CEO pay. But it doesn't, and it won't.
There is a better way. Bolchover suggests when a company has narrowed its CEO selection down to six good candidates, it should ask everyone on the shortlist to name the lowest wage and bonus package they are prepared to work for. The one who comes in with the lowest bid should get the job. (There would be a reasonable floor to make sure independently rich people didn't fill them all by offering to work for $1.)
Plenty of extremely able people would be happy to run a major corporation for a fraction of the current pay: the President earns $400,000 a year, and there's no shortage of candidates. Government regulation should make this standard practice. Suddenly, instead of the endless puffing up of CEO pay, it would start to fall to reasonable levels. It would be hugely popular: a poll for the Financial Times found 80 per cent of us think business leaders are overpaid.
It would be a sign -- at last -- of a return to sobriety after the crazed, confected amphetamine rush of the boom-dream.
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