Author

Professor Stephen J. Perkins DPhil (Oxon), Chartered Manager, Chartered FCIPD, FCMI, FHEA, formerly Dean of the Guildhall Faculty of Business and Law, works with organisational strategy leaders to ensure the remuneration of executive teams is soundly governed and effectively communicated. He is editor-in-chief of the Routledge Companion to Reward Management and leads the CIPD annual reward survey team.

In this short commentary, questions are posed regarding who really calls the shots when top pay is being decided; what classic theorists reveal about what lies behind the headlines; and what the more thoughtful organisation leaders can do to get a grip on the debate.

The context: socially disconnected and taking the flak

Labour peer, Peter Mandleson writing in the Financial Times, talks of the ‘metropolitan liberal élite’: a group that “allegedly sneers at ordinary people and is relaxed about those who use business as a vehicle for personal enrichment rather than wealth creation”.

If you reject such aspersions, are you doing anything to set the record straight? Effective leaders will wish to take stock of what’s needed to demonstrate sound corporate governance and to act on this understanding.

They will see it as part and parcel of running a business that creates value reinvested in a ‘going concern’ as well as providing fair reward for the innovative risks taken with the scarce resources to hand.

Élite interest streams are in competition not collusion

Having spent a long time talking with an array of blue-chip company chairs and leading corporate investors, I believe it is accurate to reference élites and their role. Élites make up the minority of the population that govern all aspects of our world, as they always have.

But note my use of the plural: intended to caution against assuming the existence of an all powerful class – an Establishment with a capital ‘e’ – sitting together in Davos or some other rarefied setting harmoniously pulling totalitarian levers of global domination.

In fact, apart from perhaps sharing a common interest in working with the grain of a capitalist economic system, élites of varying hues may sense being fiercely in competition with one another: particularly in a battle of ideas about whose interests should secure the kite-mark of legitimacy.

In an article published in the March 2017 issue of the (refereed academic) Journal of Organisational Effectiveness: People and Performance, I argue that what we are seeing currently is the latest phase in an intra-élite fight to secure control over who decides what counts as ‘sound governance’. Especially when it comes to managing executive remuneration.

City grandees setting the rules of the game for a quarter-century now

Taking a neutral analytical standpoint it’s been revealing looking over the 25 years of formal pronouncements since Sir Adrian Cadbury and his committee crafted the kernel of what today operates as the UK Corporate Governance Code. But debates around élites and their impact go back much further.

The early 20th century social commentator Vilfredo Pareto is credited with first using the term élite in a sociological sense. From the French but with its etymological roots in the Latin word eligere, meaning actively ‘to select’ (the best), as Hugo Drochon reminded us recently, writing in the New Statesman. For Pareto, history is ‘the graveyard of élites’: leadership minorities are locked in a dynamic, circulatory exercise in the search for legitimate authority.

Those who legal firm Pincent Masons have dubbed ‘City grandees’ from Cadbury onwards have successfully dominated formal agenda-setting around what counts as the legitimate basis for deciding remuneration for people leading publicly quoted companies. But leaders across the business world generally, and those in other sectors, find themselves perennially defending remuneration decisions and how they are arrived at.

Who controls shaping the problem of executive remuneration is crucial. And now it is in contention between at least three élite groupings: a corporate élite, a political élite and, increasingly publicly, a capital investment élite. With the latter two impelled to act on the former’s perceived excesses. If not they risk, in turn, undermining the legitimacy of capital investment and political élites themselves.

From classical thinking to a contemporary action imperative

So what can you do about it? For a quarter-century the grandees’ overriding pronouncement has been ‘comply or explain’. Reasonable enough, but do you wish simply to acquiesce in the compliance imperative in a purely functional manner? Or, while of course meeting obligations, to be more strategic: to explain how being – yes – an élite office holder brings recognition of the need for attention to the social context for executive remuneration decision taking.

Sustainably sound corporate governance takes time to shape the problem transparently around the interplay of ‘commonwealth’ creation – value of benefit to the many not just the privileged few (in the UK Prime Minister’s phrase), and sharing that value justly between all stakeholders. Accepting that ‘360 degree’ performance appraisal of company boards and other forms of leadership team is required in an open and good natured process to secure a lasting ‘social contract’ beyond simple economic transactions.

Adam Smith’s classic ‘wealth of nations’ was manifested not only in the pursuit of individual self-interest but also a ‘sympathetic’ orientation to others affected by the consequences of capitalism’s dynamics: the reverse of the sneering pejoratively elitist stereotype.

Balancing economic prowess and societal sympathy is tricky. But with careful thought and dialogue should not be beyond the grasp of organisational leaders seeking a ‘warrant’ or licence to continue doing business at home and abroad to serve common or shared ends.

Those who get the substance and process – including the communication – right are likely to succeed in creating competitive distinctiveness for their enterprise that is sustainable, looking ahead.

Best led - and, legitimately, best rewarded.

Something to ponder at the next remuneration committee meeting or board ‘away day’, lifting heads from ‘benchmarking’ or gut-wrenching ‘paralysis by analysis’ of what the competition is paying, to think about what’s right – sympathetic to the concerns of all as well as getting the best to deliver desired corporate bottom-line outcomes!

If you would like to take up the challenge, I’d like to hear from you. Contact me at profsjp.com.