21st April 2013
It’s OK for boy band One Direction to earn millions of pounds as they have proved their worth – but not all company chief executives can claim the same, according to business secretary Vince Cable writes financial journalist Jill Insley.
Pressed to enter a debate on high pay awards, Cable initially seemed to support Simon Walker, director general of the Institute of Directors, who claimed it was “mad” that the members of One Direction earned £5m each in 2012.
Walker had previously criticised chief executives and other senior staff who have overseen corporate disasters being allowed to walk away with huge payoffs, and the size of bonuses paid by scandal and crises-stricken banks.
Cable said: “I agree with much of what Simon said about the extremities of pay. Much of it is downright insensitive and grossly immoral.”
Perhaps worried about the impact his comments might have on young One Direction fans who will eventually become voters, Cable later clariﬁed his views in an interview with Sky News, saying that he didn’t want to attack One Direction, as “this is one particular group who are apparently very popular and very successful, so I have nothing against them”.
He added: “There is a general issue of chief execs in particular who are paid well beyond what can be justiﬁed in terms of the performance of their companies, and that’s something the government is now trying to address.”
Cable and Walker were both speaking at an event staged by the Resolution Foundation and High Pay Centre entitled No More Than We Deserve: The rights and wrongs of high and low pay.
Frances O’Grady, general secretary of the TUC, told the No More Than We Deserve audience that while large chunks of the UK workforce has seen its pay frozen or cut, directors’ pay has risen by 12% and chief executives’ pay by 16% in the last year. She added that while the top 1% of earners in the UK now commanded 10% of the income paid, the bottom half of earners got just 18%.
She stopped short of raising the point made by many high pay critics that companies can only afford to pay multi-million pound packages to their top executives because they pay such low salaries to the majority of their workforce – salaries that are subsidised through state beneﬁts by the tax payer.
However Robert Talbut, chairman of the investment committee at the Association of British Insurers, defended the right of company directors to receive large pay packages.
He warned that there was an “obsessive focus” on a small number of company leaders, and said people who had strived and achieved senior positions in companies, who employed lots of staff, and generated big proﬁts and tax revenues, were being held up as undeserving.
“We are in danger of creating the impression that all achievement and all reward is undeserved,” Talbut said.
How to earn it
Whether you achieve your wealth through reaching the number one slot with your first album in 16 countries, by scoring goals at the World Cup or running a company, a recent poll of millionaires found that more than half believed the key to becoming rich was good, old-fashioned, hard work.
When the deVere Group, the world’s largest independent financial advisory organisation, asked clients with investable assets worth more than £1m “what is your number one strategy to build wealth?”, 52% said their strategy was working hard, 27% saving, and 21% investing wisely.
“There’s a certain perceived mystery surrounding how the wealthy become wealthy. But our study shows that the majority of millionaires accumulate their money the old fashioned way – they work for it,” says deVere Group’s chief executive, Nigel Green.
However he added that it was probably a combination of all three that resulted in the rich really becoming rich.
Research by Lloyds TSB Private Banking backs up his belief that those who are in a position to accumulate wealth can only beneﬁt by saving and investing wisely.
The bank’s survey found that net household wealth surged past the £7trillion point for the ﬁrst time last year, taking the increase to 62% during the past decade, despite the double dip recession and disappointing house price performance in most parts of the UK. The increase in household wealth has outstripped increases in household gross disposable income, at 44%, and the the price of consumer goods, at 29%.
The increase is down to the ballooning value of ﬁnancial assets, with UK pension values growing by an estimated £1trillion since 2002 and deposits by £476bn. The average UK household now worth £255,502.
However, the Lloyds figures hide huge disparities in wealth and earnings across the UK.
Nitesh Patel, economist for Lloyds TSB private banking said that although household wealth had grown by an estimated £2.7trillion over the last 10 years, a gap had been created between the wealthiest households and the rest.
“The wealthiest 10% of households hold 22 times more wealth, on average, than those in the bottom half,” he said.