Douglas Carswell

24 MAR 2016

Free marketeers can't support extortionate executive pay

“Sky-high executive pay is damaging capitalism,” writes Moneyweek’s Merryn Somerset Webb. I think she’s right. Rocketing remuneration for a corporate clique can’t just be a target for the Left. Free marketeers shouldn’t support it either.

You’ve probably seen the headlines about the eye-watering levels of CEO pay today. The average FTSE 100 CEO now earns 183 times more than ordinary British workers. Martin Sorrell, Britain’s best-paid executive, takes home £43 million. As average wages have stagnated, CEO salaries have risen faster than ever.

Many on the Right treat executive pay packets as just a function of the market. But is it? How much value does a CEO really add to a company?

Companies often base their CEO’s salary on their share price. When the share price goes up, the CEO makes more money. The idea is that a rising share price means the boss is doing a good job.

But, in recent years, that’s not how the stock market has worked. Share prices have risen not because companies have got stronger but because central banks have flooded the market with cheap capital. The stock market is an artificial bubble, and CEO salaries are inflated by extension.

Massive CEO salaries are a sign of a corporatist economy. Today, the highest returns too often come from lobbyists rigging the rules instead of innovation. No wonder the wealthiest people nowadays are managers, not entrepreneurs.

Inflated executive pay reflects redistribution from the poor to the rich. It’s time the Right stopped defending it.

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