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Fuzzy Thinking in the U.K.

This is the kind of news story that makes me think Europe in general, and Great Britain in particular, have no future. Nick Clegg, a Liberal Democrat who serves as deputy prime minister in David Cameron’s coalition government, promises to “get tough” on private sector executives who earn too much money:

The government will publish new proposals to “get tough” on excessive pay in January, the deputy prime minister said. Among likely steps is widening the membership of remuneration committees, which set pay, to include workers.

Clegg is talking here about private corporations. Like American companies, their boards of directors have compensation committees that make recommendations about remuneration of senior executives. If their decisions or recommendations are too lavish, the company’s shareholders have a legitimate complaint. But no one else does. If you aren’t one of the owners of the company, your opinion is irrelevant. How much the company’s executives (or any other employees) earn is none of your business.

Recent figures showed executive pay at Britain’s biggest firms rose 50 per cent in the last year, taking the average pay for a FTSE 100 director to just short of £2.7m.

I am not sure what it takes to be an FTSE 100 director–I take it that these are CEOs or other senior executives of Britain’s largest companies–but $4 million a year is plenty of money. On the other hand, it is a great deal less than what David Beckham ($49 million per year) or Wayne Rooney ($15 million, not counting endorsements, etc.) makes. Why are the salaries of executives of private companies any more the government’s business than the salaries and endorsement deals of athletes?

“Just as we have been quite tough on unsustainable and unaffordable things in the public sector, we now need to get tough on irresponsible behaviour of top remuneration of executives in the private sector,” he said.

Who is “we?” The British government is all about managing the public sector; that is what it is elected to do. But since when does the government have an interest in the wages of private sector employees, who by definition don’t work for the government?

Mr Clegg said the public sector could not be seen to do “all the heavy lifting” when it came to the government’s austerity programme and the private sector had to contribute as well.

“I think we need to make sure that people in the public sector do not feel that they are doing all the heavy lifting.

“That people who are in a sense living by completely different rules in the private sector are also held to account.”

Where to begin? The British government has embarked on an austerity program because it is deep in debt. Any given private company may or may not be in need of an austerity program; some are in clover. There is no connection between the two. For what it is worth, assuming that the British personal income tax structure is anywhere near as progressive as ours, beating down the incomes of top earners will worsen, not improve, the government’s fiscal status.

Clegg’s deep ignorance continues:

Shareholders were too often given a “blizzard of information” about pay, and had their opinions ignored, Mr Clegg added.

“Shareholders should be given a proper say. They own the companies after all,” he added.

Exactly. So what does the government have to do with it? If a shareholder lacks confidence in a company’s management for any reason, including this one, he should sell his shares. But shareholders are largely pension plans, mutual funds, etc., and they are well able to make their concerns known if they are unhappy with the company’s compensation decisions. If only voters had as much influence over public sector pay scales, which vastly exceed the compensation available in the private sector!

This kind of fuzzy thinking–really, willful ignorance–is not unique to Europe. Unfortunately, quite a few Americans also believe that their neighbors’ incomes are, somehow, their business.

Recommend this Power Line article to your Facebook friends.

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