Monday, October 01, 2007

A Business Report

Salaries of UK executives rose by 37 percent this year to an average approaching £3 million - 20 times the inflation rate and 11 times the 4 percent rise in average earnings last year in Britain , according to this article .

The ratio between what executives of the 100 biggest firms earn and what their staff are paid has risen to 98:1 from 93:1 a year ago. Executives are valued nearly 100 times more highly than their employees. Banker JP Morgan said a century ago that no company should have an executive:employee differential of more than 20:1; indeed, the differential in the US in the 1960s was 24:1.

UK Pub group chief executive Giles Thorley last year took a salary package of £11 276 000, which was 1 278 times the average salary of the group's employees; they got £8 821, a salary on which a family could not survive without supplement .

This is not a one-off occurrence; it is a long-term global trend towards deepening inequality. The Russians have joined in: last month tax-evading oil executive Mikhail Gutseriyev arrived in London with $3 billion .

The fact is that national economic growth does not translate into wages, but goes straight to the top.
In the five years to 2005, the US economy grew by 14 percent in real terms, and labour productivity by 16.6 percent. But in that time the median family income fell by nearly 3 percent. Where did the productivity go? Into profit, whose share rose from 17.7 percent to nearly 21 percent. And chief executive pay rose by 186 per¬cent in the three years to 2005.

Executive salaries and bonuses are calculated by how much value they have delivered - to shareholders. They are judged by how much shareholders have taken away in dividends, and the value of their shares. Nothing to do with how anyone else benefited, or the company's long-term interests.
Stewart Wallis, the director of the London-based New Economics Foundation, defines the current version of capitalism as a system that operates "for the prime benefit of the providers of private capital".

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