Bonuses are the enemy of progress

Andrew Hill in The Financial Times



When my children were still in primary school, I once let my English stiff upper lip slacken and asked them whether I had ever said how much I loved them. “Yes,” responded my truculent son, “but not with money.” 

I am reminded of his precocious attempt to persuade me to apply hard cash to a soft problem every time I hear about efforts to use monetary bonuses to encourage executives to hit non-financial goals. 

Reduced emissions, safer factories, better gender balance: companies everywhere are enshrining such creditable objectives as “key performance indicators”, putting a price on the target, and letting greed take care of the rest. 

“I think we’ve got to do more to tie the outcomes to compensation, so that it’s meaningful and it’s real,” declared Alexis Herman, a former US labour secretary and Coca-Cola board member, at the recent Women’s Forum for the Economy & Society in Paris, discussing how businesses can become more “human”. 

More than once I heard delegates suggest similar solutions in similar terms. The argument went like this: make bonuses dependent on progress, particularly on diversity, because bonuses are “the only language executives understand”. 

In that case, it is about time executives learnt another language, because at the highest level, bonus-based pay packages are a mess. 

Indeed, there is something perverse about suggesting that companies should hammer away at the vital, sensitive question of how to improve their environmental, social and governance performance using a blunt instrument — the cash bonus — that has helped deepen mistrust of business, and widen inequality. 

When misused, monetary bonuses foster selfishness, backbiting, even cheating among employees. Staff who start taking bonuses for granted become resentful if the cash is withdrawn, as banks that have tried to rein in such rewards since the financial crisis have discovered. When bonus packages are too complex, evidence suggests that managers simply ignore the targets altogether. 

Adding non-financial goals undeniably complicates what is already a baffling array of executive incentives. Measuring how managers have performed against softer targets is also notoriously hard. That is one reason why, at board level, directors seem to have wide discretion to adjust chief executives’ bonuses for non-financial performance. 

Coca-Cola, for example, assessed the 2016 performance of its then chief executive, Muhtar Kent, on no fewer than six strategic initiatives — “People, Planet, Productivity, Partners, Portfolio and Profit”. To decide his bonus, the compensation committee took account not only of his efforts to refranchise US bottling operations, but also to replenish water, reduce sugar and accelerate diversity. 

I would question whether Mr Kent pondered for long the impact on his pay of the many non-financial decisions he took. Most of his eventual bonus of $4.1m (out of a total package of $16m), was the outcome of a formula based on financial results rather than other worthy actions. 

Leaders should do their best to encourage and harness workers’ love of the job. But cash bonuses can get in the way of this intrinsic motivation to do the right thing. 

Ioannis Ioannou, Shelley Xin Li and George Serafeim have studied attempts to meet demanding carbon emission targets.They found using stretch goals alone was quite effective. But adding monetary incentives seemed to undermine companies’ ability to hit the ambitious targets. 

Not to say that incentives are worthless. BHP Billiton, the miner, is making progress towards its demanding goal of achieving gender balance by 2025, helped by the fact that bonuses for senior staff are tied to advances towards the objective. Prof Ioannou of London Business School says bonuses spurred on managers whose job description already included cleaning up emissions. 

Still, I am queasy about offering cash rewards for good intentions that should be the norm. I don’t like promising cash incentives to my children for excellent exam results, either, let alone for loading the dishwasher or vacuuming their bedrooms. 

As Nobel-winning economist Richard Thaler wrote in Misbehaving, it is “overly simplistic” to assume that financial incentives to children (or their parents or teachers) will improve performance. Likewise for many subtler corporate objectives. 

In fact, I fear the main effect of focusing executives’ attention on cash bonuses for being cleaner, safer or more inclusive will be to remind them that the most “meaningful and real” rewards are available for the headlong pursuit of pure profit.

Britain’s bosses fat and lazy? For once, Liam Fox has a point

Aditya Chakrabortty in The Guardian

Liam Fox ranks among the chief fantasists behind Brexit, deplores gay marriage as “social engineering”, and thinks nothing of claiming 3p from taxpayers for a car journey of less than 100m. But even a snake-oil salesman sometimes speaks the truth and in criticising British business as “too lazy and too fat on our successes”, he has a point.

I know, I know. Why defend a Tory headbanger who otherwise thirsts for cuts to the NHS budget and the slashing of taxes upon the rich? Why entertain lectures from someone whose only attempt at job creation was the boondoggle he shamelessly awarded his former best man?

Yet when the international trade secretary says, “If you want to share in the prosperity of our country, you have a duty to contribute to the prosperity of our country”, I fail to muster up the outrage. I share neither Fox’s views on the causes nor his suggestions on the solution. But he is on to something.

For the past six years, the Tory party has barely paused from laying into British workers. From Iain Duncan Smith to George Osborne, senior ministers wrote off a sizeable chunk of this country as “skivers”. The screws were twisted so hard that jobseekers who decline zero-hours contracts are now penalised with benefit sanctions.

And the Tories did all this with the simpering connivance of Nick Clegg’s LibDems. If you think that era ended with David Cameron, remember that Theresa May’s cabinet boasts luminaries who wrote a report stating: “Too many people in Britain … prefer a lie-in to hard work. Once they enter the workplace, the British are among the worst idlers in the world.”

Ever since 2010, the Tories have tried to pin the blame for economic sluggishness on the shirking Brits. At the same time, their ministers have boasted, with all the regularity of a cuckoo clock, about how the number of British people in work is now at a record high. As a matter of logic, both things cannot be true. The British cannot be both workshy and working more than ever before. The Tories have been fibbing – and at last one of their number has come out and said as much.

The real problem in Britain isn’t its workers: it’s the bosses. By this, I’m not getting at the poor old line managers. I mean those right at the top of big business who have got away with paying themselves too much and investing too little in their workers, their businesses and their society.

Consider pay. While the average British worker is barely better off than in 2008, wages for those at the top of British business have just kept soaring. Researchers at the High Pay Centre recently went through the accounts of the FTSE 100 largest companies. They found that chief executives raked in an average of £5.5m in 2015, up 10% from the year before.

Bung in the lavish pension arrangements and generous bonuses and the average chief executive now earns the same as 129 of their employees. There is no justification for such a wide disparity: no one is as productive as 129 other people. We have gone beyond “Because I’m Worth It” to “Because I Said So” (and my mates on the remuneration committee backed me up). Even when shareholders revolt, as happened at BP over the £14m handed out to its chief executive despite huge losses, they are roundly ignored.

The TUC has just crunched the numbers on how much investment the private sector makes in this country. Of the 29 leading industrialised countries, the UK comes in at 27. Businesses in Estonia, the Czech Republic, Poland: all invest more in plants, equipment and the rest. The only countries that do worse are Greece and Iceland.

We have the same calamitous showing in spending on research and development. A few years ago, the Sheffield University physicist Prof Richard Jones went through the figures. He wrote: “In 1979 the UK was one of the most research-intensive economies in the world. Now, among advanced industrial economies, it is one of the least.” All of our competitors – the US, Japan, France and Germany – have maintained or increased their spending on research. South Korea and China are breathing down our necks. But the British capitalist class prefers the safe bets, the quick bucks – and the mega handouts to the senior executives and the shareholders.

Vice chairman of Stronger In campaign calls off Liam Fox after saying is Britain ‘fat and lazy’
Friday afternoons on the golf course? Fox may have watched one too many episodes of Terry and June. But what’s clear is that Britain’s bosses pay themselves far more than is justified either by comparison with their workers or on their performance. They have spent years relying on taxpayers to top up poverty pay and on the regulators to allow pensions holidays – just so they could hand out more money to shareholders.

They take what academic Kevin Farnsworth estimates at £93bn a year in corporate welfare – cash handouts and subsidies. But they react with horror to the notion of decent wages or chipping in for apprenticeships, rather than treating them as the normal overheads of doing business in a developed country. If that’s not fat and lazy, I don’t know what is.

Of course there are good and non-greedy bosses. But I have spent six years hearing the view that the British are lazy spongers with barely a demurral from most of the media or the political classes. It is high time to push the pendulum back a little.

Fox sees the answer to all this as more slash and burn: of taxes, of red tape, of public spending. That is delusional. Britain has spent 40 years making the burden on business easier, and the results have been to create a capitalist class so sluggish and short-term that it now threatens the continuation of capitalism.

Better, by far, to have a more honest capitalism: in which the responsibilities of business – on taxes, on pay and on investment – are laid out alongside their rights.

If bankers leave the country, it would be no loss

Ignore their howls of protest. 

They took home unheard of sums. Only in Britain do ministers dance to their tune. But public fury cannot be defied for ever

• 
• • Simon Jenkins
  • The Guardian, Wednesday 6 March 2013

Illustration by Belle Mellor

The peasants are revolting across Europe. They want bankers' blood and mean to get it. Until now, public response to the credit crunch has been one of general bafflement and wrist-slapping. The banks persuaded the world it was all an act of fate. As it was, they were too big to fail and their leaders too saintly to atone for it. For four years, British banks were showered with nearly half a trillion pounds of public and printed money. They duly recovered and stayed rich, while everyone else went poor.

The worm has turned. The banks and government alike have failed to deliver recovery. The people want revenge, and have found it – of all places – in the European parliament. It has declared that EU bankers cannot get bonuses bigger than their salaries, or twice as big if shareholders approve. This applies wherever EU bankers work, and to any overseas banker working in the EU.

Meanwhile, a Swiss referendum now requires top executives to seek explicit shareholder approval for their pay, with a ban on golden hellos and goodbyes. The Netherlands is talking of a tighter 20% cap on bonuses. Even laissez-faire Britain has seen the National Association of Pension Funds demand that boards keep executive pay rises down to inflation.

Europe's once omnipotent banking lobby has been all but neutered by the scale of scandal. The German government caved in to the EU parliament under pressure from the opposition Social Democrats. This was after the Libor scandal revealed Deutsche Bank cutting one trader's bonus by £34m, thus implying a staggering original sum. The Swiss campaign was kicked into life by the drugs firm Novartis giving its departing chairman a $76m gift. Some 68% of Swiss voted for the new curb.

Only in Britain do ministers still dance to the bankers' tune. Last month RBS executives brushed aside their state shareholder and paid themselves £600m in bonuses after posting a £5bn loss. Loss-making Lloyds dipped into its till and gave senior staff an extra £365m. Money-laundering HSBC announced 78 of its London executives would take home more than £1m each. They all say bonuses were unrelated to fines or losses, but they always say that. George Osborne was humiliated in Brussels on Tuesday by having to plead their fruitless cause.

Last year the City of London's much-heralded "shareholder spring" got nowhere. Revolts against executive pay at WPP, Barclays, Trinity Mirror and elsewhere had little noticeable impact. While overall pay stagnated, that of top executives rose 12%. Opinion polls showed the public overwhelmingly hostile to top pay. Only the government and the London mayor stand between the very rich and a furious public. The peasants' revolt means that even British ministers cannot defy opinion for ever.

The reality is that the banking community has allowed this thirst for revenge to build up for over four years, and it just did not care. Ever since the 1980s and financial deregulation, the profession took home sums of money unheard of in any other line of work.

This had nothing to do with free markets, except within a tight group of high-rolling traders. Modern bankers derive "economic rent" from exploiting oligopolistic cartels in financial services, with shareholders kept at one remove. The astronomical traders' bonuses are asymmetric returns on cash that properly belongs to depositors and shareholders whose money bears the risk. In any other business such bonuses would be regarded as theft from the firm.

For four years the British government – Labour and the coalition – huffed and puffed but was too terrified of the banks to act. Regulators were suborned by lobbyists and ministers, their offices packed with seconded bankers, and did as they were told. They gave huge sums to the banks in the belief that this was benefiting the demand economy. In Britain, some £400bn of cash was "pumped into the economy" via the banks. They merely traded or hoarded it, to their ever greater enrichment. The money vanished. A thousand pounds handed to every British citizen would have had more impact on the economy.

Last year, as if learning nothing, the Treasury gave the banks another £80bn to boost business and mortgage lending. This week it was predictably revealed that lending to small businesses actually fell as result. It was like giving money to a drunk and telling him to support his children. Never in the history of money can policy have been so glaringly inept. The banks laughed.

No trade unions are fiercer in defending their interests than the rich professions. As we saw this week with lawyers, cut their largesse and they threaten to take it out on the poor, the economy, the government, everyone. The banks howl that the bonus cap means their greed will go "offshore". This seems exaggerated. But the EU curbs could possibly see the start of the high-rollers moving out of over-regulated Europe towards the Americas and Asia.

This would not be wholly good news for Britain: finance has been the boom industry of the past quarter-century. But more likely is that the more toxic activities will go, and that is no loss. Either way, the banks have themselves to blame. They flew their golden wings too near the sun, and rage has melted them. They have only one plea on their side. The culture of greed in the City was nothing to the culture of ineptitude at the Bank of England and the Treasury. They pumped out the money. Never in British economic history can so much have been so wasted on so fruitless a cause. And still no hint of remorse.

The true value of money – or why you can't fart a crashing plane back into the sky

Banknotes aren't worth the paper they're printed on. The entire economy relies on the suspension of disbelief

• 
• • Charlie Brooker
  • guardian.co.uk, Sunday 12 February 2012

I'm no financial expert. I scarcely know what a coin is. Ask me to explain what a credit default swap is and I'll emit an unbroken 10-minute "um" through the clueless face of a broken puppet. You might as well ask a pantomime horse. But even an idiot such as me can see that money, as a whole, doesn't really seem to be working any more.

Money is broken, and until we admit that, any attempts to fix the economy seem doomed to fail. We're like passengers on a nosediving plane thinking if we all fart hard enough, we can lift it back into the sky. So should we be storming the cockpit or hunting for parachutes instead? I don't know: I ran out of metaphor after the fart gag. You're on your own from hereon in.

Banknotes aren't worth the paper they're printed on. If they were, they'd all have identical value. Money's only worth what the City thinks it's worth. Or, perhaps more accurately, hopes it's worth. Coins should really be called "wish-discs" instead. That name alone would give a truer sense of their value than the speculative number embossed on them.

The entire economy relies on the suspension of disbelief. So does a fairy story, or an animated cartoon. This means that no matter how soberly the financial experts dress, no matter how dry their language, the economy they worship can only ever be as plausible as an episode of SpongeBob SquarePants. It's certainly nowhere near as well thought-out and executed.

No one really understands how it all works: if they did, we wouldn't be in this mess. Banking, as far as I can tell, seems to be almost as precise a science as using a slot machine. You either blindly hope for the best, delude yourself into thinking you've worked out a system, or open it up when no one's looking and rig the settings so it'll pay out illegally.

The chief difference is that slot machines are more familiar and graspable to most of us. When you hear a jackpot being paid out to a gambler, the robotic clunk-clunk-clunk of coin-on-tray, you're aware that he had to go to some kind of effort to get his reward. You know he stood there pushing buttons for hours. You can picture that.

The recent outrage over City bonuses stems from a combination of two factors: the sheer size of the numbers involved coupled with a lack of respect for the work involved in earning them. Like bankers, top footballers are massively overpaid, but at least you comprehend what they're doing for the money. If Wayne Rooney was paid millions to play lacrosse in a closed room in pitch darkness, people would begrudge him his millions far more than they already do. Instead there he is, on live television: he's skilled, no doubt about it.

Similarly, it may be tasteless when a rapper pops up on MTV wearing so much bling he might as well have dipped himself in glue and jumped into a treasure chest full of vajazzling crystals, but at least you understand how he earned it.

RBS boss Stephen Hester, meanwhile, earns more than a million pounds for performing enigmatic actions behind the scenes at a publicly owned bank. And on top of his huge wage, he was in line for a massive bonus. To most people, that's downright cheeky: like a man getting a blowjob from your spouse while asking you to make him a cup of tea.

But Hester earned his wage, we're told, because he does an incredibly difficult job. And maybe he does. Trouble is, no one outside the City understands what his job actually consists of. I find it almost impossible to picture a day in Hester's life, and I once wrote a short story about a pint-sized toy Womble that ran around killing dogs with its dick, so I know I don't lack imagination. Class, yes: imagination, no. If I strain my mind's eye, I can just about picture Hester arriving at work, picture him thanking his driver, picture the receptionist saying "Hello, Mr Hester", and picture him striding confidently into his office – but the moment the door shuts, my feed breaks up and goes fuzzy. What does he do in there? Pull levers? Chase numbers round the room with a broom? God knows.

Maybe if all bankers were forced to work in public, on the pavement, it would help us understand what they actually do. Of course, you'd have to encase them in a Perspex box so they wouldn't be attacked. In fact, if the experience of David Blaine is anything to go by, you'd have to quickly move that Perspex box to somewhere impossibly high up, where people can't pelt it with golf balls and tangerines. On top of the Gherkin, say. If Hester did his job inside a Perspex box on top of the Gherkin for a year, this entire argument might never have happened.

The row over bonuses has led some to mutter darkly about mob rule and the rise of anti-business sentiment. Complain about mobs all you like, but you can't control gut reactions, and you can't dictate the mood. And when you try to fart a crashing plane back into the sky, you only succeed in making the atmosphere unpleasant for everyone. And spoiling the in-flight movie. And making the stewardess cry. Looks like I'm all out of metaphor again. Time to end the article. Article ends.

Why we need more banker bashing

Banks are the biggest scroungers of public money – solutions will not simply materialise if we don't keep up the pressure

• 
• • Sunny Hundal
  • guardian.co.uk, Tuesday 7 February 2012 10.15 GMT

Bank-bashing is in its third year and has become even more vociferous. Photograph: Martin Godwin

 

I have a confession to make: I wanted to be a banker once. While arming myself with a degree in economics, I dreamed of working at an investment bank arranging mergers and acquisitions. The growing size of M&A activity got us budding economists excited and I wanted a part of the action. But the dotcom boom of the late 90s lured me in instead and I missed out on the opportunity to ruin the world's economy. In a sign of the times, when I asked a university mate recently where he worked now, he replied: "Goldm- *cough* -acks" rather haphazardly. It seems not many want to be associated with the "great vampire squid" any more.

Banker bashing has now entered its third year and become even more vociferous, spreading to bonus bashing thanks to Network Rail. Last week columnists at the Times and Financial Times wailed that all this a) was hurting UK's economic prospects and b) would have limited traction with the public. The second excuse is easy to dismiss: actually there is plenty of public appetite for banker bashing to continue. They want more and they don't think it damages our economic prospects. But is it right to continue this, ask critics? Who will think of the [privately educated] children? Let me offer several reasons to continue banker bashing.

First, banking reform has been pitifully weak. If the crash were to happen again tomorrow, the government would have to bail them out again. They remain leveraged up to their eyeballs; remain "too big to fail" and too inter-connected to each other so most can't be allowed to go bust. Without public anger there is no impetus to push banking reforms further, which the Conservatives are stridently resisting and Labour is still reluctant to push too far.

Secondly, the banker bashing begs a wider question – if finance has become the life-blood of modern economies, why can't we exercise more control over such a vital industry? Consider this: we pretend that banks are private businesses that should be allowed to run their own affairs. But they are the biggest scroungers of public money of our time. Banks are lent vast sums of money by central banks at near-zero interest. They lend that money to us or back to the government at higher rates and rake in the difference by the billion. They don't even have to make clever investments to make huge profits.
At the height of the crash, US banks were simply given $13bn overnight. No repayment needed. We don't know what happened, because the details are kept secret. The entire industry is underwritten by guarantees from central banks. If threatened with systematic failure, which is becoming increasingly common, governments have no option but to bail them out. The financial system rules over our lives too, through our credit history. Everything could be choked off at a whim, through administrative error or for political reasons, and we wouldn't have democratic recourse. Organisations such as WikiLeaks were simply frozen out of the global financial system at the click of a button. Banks get special preferences like no other industry, and yet we don't even ask why these publicly subsidised yacht owners have so much control over our lives. Why not?

Far from being the pinnacle of free market capitalism, banking is full of sorry executives who keep asking for more handouts to protect their deliberately bloated businesses. The solutions won't materialise if we go back to how things were. Public anger has grown because it is starting to dawn on middle England that while the rest of us are paying for the crisis, the people who caused the crash want to go back to 2007. Even the Daily Mail is starting to reflect this impatience. This recession is already longer than the 1930s and the stagnation will continue for maybe a decade. For from being over, the nightmare for the Goodwins and Hesters is just getting started. And quite rightly too.

Only a maximum wage can end the great corporate pay robbery

Corporate wealth is being siphoned off by a kleptocratic class that has neither earned nor generated it

• 
• • George Monbiot
  • guardian.co.uk, Monday 23 January 2012 18.58 GMT
  • larger | smaller

The business secretary, Vince Cable. Photograph: Martin Argles for the Guardian

 

The successful bank robber no longer covers his face and leaps over the counter with a sawn-off shotgun. He arrives in a chauffeur-driven car, glides into the lift then saunters into an office at the top of the building. No one stops him. No one, even when the scale of the heist is revealed, issues a warrant for his arrest. The modern robber obtains prior approval from the institution he is fleecing.
The income of corporate executives, which the business secretary Vince Cable has just failed to address, is a form of institutionalised theft, arranged by a kleptocratic class for the benefit of its members. The wealth that was once spread more evenly among the staff of a company, or distributed as lower prices or higher taxes, is now siphoned off by people who have neither earned nor generated it.

Over the past 10 years, chief executives' pay has risen nine times faster than that of the median earner. Some bosses (British Gas, Xstrata and Barclays for example) are now being paid over 1,000 times the national median wage. The share of national income captured by the top 0.1% rose from 1.3% in 1979 to 6.5% by 2007.

These rewards bear no relationship to risk. The bosses of big companies, though they call themselves risk-takers, are 13 times less likely to be sacked than the lowest paid workers. Even if they lose their jobs and never work again, they will have invested so much and secured such generous pensions and severance packages that they'll live in luxury for the rest of their lives. The risks are carried by other people.

The problem of executive pay is characterised by Cable and many others as a gap between reward and performance. But it runs deeper than that, for three reasons. As the writer Dan Pink has shown, it's not just that there is currently no visible link between performance and pay; but high pay actually reduces performance. Material rewards incentivise simple mechanistic jobs: working on an assembly line, for example. But they lead to the poorer execution of tasks which require problem-solving and cognitive skills. As studies for the US Federal Reserve and other such bolsheviks show, cash incentives narrow people's focus and restrict the range of their thinking. By contrast, intrinsic motivators — such as a sense of autonomy, of enhancing your skills and pursuing a higher purpose — tend to improve performance.

Even the 0.1% concede that money is not what drives them. Bernie Ecclestone says: "I doubt if any successful business person works for money … money is a by-product of success. It's not the main aim." Jeroen van der Veer, formerly the chief executive of Shell, recalls, "if I had been paid 50% more, I would not have done it better. If I had been paid 50% less, then I would not have done it worse". High pay is both counterproductive and unnecessary.

The second reason is that, as the psychologist Daniel Kahneman has shown, performance in the financial sector is random, and the belief of traders and fund managers that they are using skill to beat the market is a cognitive illusion. A link between pay and results is a reward for blind luck.
Most importantly, the wider consequences of grotesque inequality bear no relationship to entitlement. Obscene rewards for success are as socially corrosive as obscene rewards for failure. They reduce social mobility, enhance plutocratic power and allow the elite to inflict astonishing levels of damage on the environment. They create resentment and reduce the motivation of other workers, who see the greedy bosses as the personification of the company.

Cable has announced four main policies: more transparency, a requirement that companies should "report" on boardroom diversity, a mechanism for clawing back pay settlements not justified by the company's performance, and granting shareholders binding powers to block excessive rewards. They are likely to be almost useless – or worse. Pay transparency, while of general interest, can create the perverse result that executives discover how much their rivals are getting, and use the information to demand more. The clawback mechanism will be inserted into the corporate governance code. This is voluntary, and its existing provisions are widely ignored.

Shareholder power is likely to be illusory. As Prem Sikka has shown, the proportion of stock owned by individuals fell from 47% in 1969 to 10% in 2008, while the percentage in foreign hands has risen from 7% to 42%. Why should oil sheikhs care about social justice in the UK? And most traders hold shares too briefly to take an interest in the inner workings of a company. As Rob Taylor, formerly the chief executive of Kleinwort Benson, points out, if shareholders don't like the way a company is run, they don't hang around to change it; they sell up and move on.

Labour's policies seem designed to sound tough but change little. Like Cable, its spokesman Chuka Umunna talks of transparency and simplicity (which are both worthy aims) but not of holding down pay. Labour has based its policy on the findings of the High Pay Commission, which have been widely hailed as revolutionary. I've read the commission's final report, and can find no justification for this description. Its recommendations are, to be frank, pathetic. With the possible exception of employee representation on pay committees, the 12 measures it proposes are likely to make only a marginal difference. Nowhere does it suggest anything resembling the obvious means of capping executive pay: namely, er, capping executive pay.

So what should be done? The UK government imposes a minimum wage, and even the neoliberal coalition appears to accept that this is a necessary intervention in the market. So why should it not impose a maximum wage?

I'm not talking about ratios or relative earnings. Various bodies have proposed that there should be a fixed ratio of the top earnings within a company to either the median or lowest salaries. But as a report on this issue by the New Economics Foundation shows, the first measurement quickly becomes complex and opaque, the second creates an incentive to contract out the lowest paid work. I'm talking about an absolute maximum, applied nationwide.

Let's say £500,000 a year, a figure that includes bonuses, share options, pensions and benefits. It will rise with inflation, but no faster than that. If you want to make more, you can invest in a risky venture of your own or someone else's. If you want to make more money as a salaried worker – in other words while other people carry the risks – you can go abroad, and good riddance to you. Another country, incautious enough to set no cap, can deal with the consequences of your destructive greed.
The feeble measures proposed by the government will do nothing to prevent the great pay robbery. If Vince Cable intended to limit executive pay, he would limit it. But he knows who his masters are, and the policies he has announced are intended to create only a semblance of action.