Pay Consultants Help Increase Boardroom salaries

28th November 2011

One of the today's most controversial topics is the growing gap between rich and poor. Increases in pay for executives have been staggering. In 30 years, the annual salary of the head of British Aerospace rose from 29,000 pounds to 2.4 million pounds, an increase of 8,000 per cent. By contrast, the typical annual salary rose about 500 per cent.

What is causing such a dramatic rise in pay? A new careers field has emerged in the last few years, called pay consultants. These consultants, who have been compared to cartels by critics, act as go-betweens, negotiating pay structures, recruitment and jobs benefits packages for the executives with the remuneration committees. While the fees paid to these consultants are kept under wraps, they are compared to those earned by lawyers and accountants.

Just last year, a survey courtesy of Income Data Services showed that FTSE-100 company senior directors received an additional 49 per cent raise, while private sector salaries increased by about 3 per cent. The TUC general secretary, Brendan Barber, expressed concern about well-paid consultants telling well-paid non-executives what the executives themselves should be paid. He called the system a "race to the top," and said that it causes "generous pay rises year after year."

One possible way to curb these staggering pay increases is to have employee representatives sitting on the board, as they do in Germany. Otherwise, with no checks on pay, salaries may continue to rise and the gap between rich and poor will only grow.

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