Could bringing back performance-based bonuses help make pay fairer?
YES, says Giles Gibbons, chief executive of Good Business, an ethical strategy consultancy.
News this week that FTSE 100 bosses earn a typical worker’s wage in just 33 hours angered people across the UK — something has to change. And counter-intuitive as it may seem, bringing back bonus schemes would help.
Yes, they are the symbol of the crazed short-termism that led to the collapse of Lehman Brothers and the subsequent financial crash. But that’s a result of the way they were structured. The concept of bonuses remains an unbeatable way to link reward to results.
Two changes would need to be made. First, bonuses need to be designed to prevent risky behaviour and incentivise progressive capitalism by linking them to non-financial targets as well as profits. Second, they need to be available to everyone who works for the organisation, proportional to their input, not just the few at the top.
Structured in this way, you could link overall pay to actual performance far more fairly. It would mean that everyone who contributes to the success of the business benefits from it — who’s going to complain about that?
NO, says Luke Hildyard, executive director of the High Pay Centre.
The share of total UK income captured by the richest one per cent has increased from six per cent to 15 per cent since 1979. Research from the LSE shows that the biggest leaps in the share of income going to the one per cent resulted from increased pay and bonuses in the financial services sector.
So the evidence suggests that performance-related pay in banking has made the gaps between those at the top and everybody else even wider — while also playing a role in Libor manipulation, money laundering, and countless other scandals. Elsewhere, chief executives’ incentive payments have encouraged businesses to take an increasingly short-term perspective, cutting investment in order to increase profitability and hit bonus targets.
Stronger employment rights, trade union access for low-paid workers, stakeholder-oriented corporate governance, and higher taxes on the super-rich are the route to fairer pay, not the fantasy of performance-related pay, which has already proven its highly undesirable consequences.
Main image credit: Getty