The lottery, inheritance, and why corporate bonuses are a distraction
I was interested to see how the UK media handled two stories recently. I think their coverage reflects the perception of the general public, so in a sense my real interest is the way people get furious about some things while casually accepting far greater injustices and inequalities.
Firstly, bonuses. Senior managers in various major UK companies sometimes get very large payouts, and quite rightly there's been anger at both the processes used to determine these and the perception that bonuses are all too often given despite mediocre performances. However, there's far less anger at the broader issue of total remuneration: RBS CEO Stephen Hester's salary of £1.2m gets little attention (because it's continuous) whereas a bonus of £1m creates media and popular anger (because it's news). So we've seen lots of headlines about this boss or that getting bonuses. The message is clear: "this is unfair and wrong".
Secondly, lottery payments. Recently a young British couple won £45m from Euromillions. The headline isn't "Two gamblers win huge tax-free lump sum purely due to luck" or "Massive wealth redistributed from the poor to create two new multi-millionaires", it's of course a happy story about this lovely young couple and how they'll buy a new car and home. We're meant to feel happy, not angry. Don't think about the millions of losers, or how this free coverage for the lottery might encourage them to gamble more with money many of them don't have to spare. No, focus on the joyous photo op.
So: if you work hard and get a £1m bonus at the height of your career, that is evil. (It doesn't seem to matter much whether you've done a good job: it's just wrong.) But if you receive £45m tax-free through sheer dumb luck, that's fine.
And the lottery isn't the only example of this. Inheritance is much like a lottery win in that the recipient doesn't earn it. In practice, it's mostly a matter of being lucky enough to be born to the right parents. If Stephen Hester had received a £1m inheritance, would the media have cared? Would there be public condemnation? Of course not.
My objection to this situation isn't that people get angry about corporate bonuses. Broadly speaking, I think many executives are overpaid and that the balance of power between shareholders and execs is wrong. My objection is that the focus is disproportionate and distracts from vastly greater unfairness and inequalities. And consider the main alternative to bonuses: would it be fair to give a huge fixed salary regardless of performance?
So I'll finish with a prediction. Many corporations will change the way they speak about pay. They'll look at giving higher salaries but with a clawback if performance is poor. Structured correctly, this will make damn all difference to the high levels of executive pay, but by removing the word "bonus" and making the massive payments less newsworthy, the problem will seem to go away. And of course, no-one will care about inheritance, land-rezoning, lotteries or any such other fortunes.
Firstly, bonuses. Senior managers in various major UK companies sometimes get very large payouts, and quite rightly there's been anger at both the processes used to determine these and the perception that bonuses are all too often given despite mediocre performances. However, there's far less anger at the broader issue of total remuneration: RBS CEO Stephen Hester's salary of £1.2m gets little attention (because it's continuous) whereas a bonus of £1m creates media and popular anger (because it's news). So we've seen lots of headlines about this boss or that getting bonuses. The message is clear: "this is unfair and wrong".
Secondly, lottery payments. Recently a young British couple won £45m from Euromillions. The headline isn't "Two gamblers win huge tax-free lump sum purely due to luck" or "Massive wealth redistributed from the poor to create two new multi-millionaires", it's of course a happy story about this lovely young couple and how they'll buy a new car and home. We're meant to feel happy, not angry. Don't think about the millions of losers, or how this free coverage for the lottery might encourage them to gamble more with money many of them don't have to spare. No, focus on the joyous photo op.
So: if you work hard and get a £1m bonus at the height of your career, that is evil. (It doesn't seem to matter much whether you've done a good job: it's just wrong.) But if you receive £45m tax-free through sheer dumb luck, that's fine.
And the lottery isn't the only example of this. Inheritance is much like a lottery win in that the recipient doesn't earn it. In practice, it's mostly a matter of being lucky enough to be born to the right parents. If Stephen Hester had received a £1m inheritance, would the media have cared? Would there be public condemnation? Of course not.
My objection to this situation isn't that people get angry about corporate bonuses. Broadly speaking, I think many executives are overpaid and that the balance of power between shareholders and execs is wrong. My objection is that the focus is disproportionate and distracts from vastly greater unfairness and inequalities. And consider the main alternative to bonuses: would it be fair to give a huge fixed salary regardless of performance?
So I'll finish with a prediction. Many corporations will change the way they speak about pay. They'll look at giving higher salaries but with a clawback if performance is poor. Structured correctly, this will make damn all difference to the high levels of executive pay, but by removing the word "bonus" and making the massive payments less newsworthy, the problem will seem to go away. And of course, no-one will care about inheritance, land-rezoning, lotteries or any such other fortunes.