Should the Salaries of Business Executives be capped?

By Teodor Wator

Any suggestion of, in some way, reducing the income of the top 10%, 5%, or even 1% of society has always been followed by an identical response: loud outrage from the affected minority contrasted by support from the vast majority, labelled by the capitalist system as "inferior" or "second-class" by virtue of their position and income. Despite being defeated by the powerful voices of the elite, the same question has returned repeatedly both in companies and in government, but we should not relent and believe the flowery illusions of the claimed fairness and societal benefit of uncapped executive salaries.

Some, but namely and predominantly those in receipt of these inflated salaries, would like the belief that executive salaries are not in fact inflated to become the popular view. They confidently state that those are the salaries that they deserve, often after years of academic and professional experience, culminating in the position of ultimate responsibility in a company. "The dedication, the determination, the stress that we are under clearly entitles us to this, if not to more," an executive would proclaim. The consequence of needing extensive experience is further emphasised through the fundamental economic principle of supply and demand, leaving no legitimate reasoning for a cap.

Nevertheless, an issue with the arguments made against a salary cap arises before the argument itself is even considered, with its provenance being sufficiently objectionable to exclude it entirely. It would be naive to expect those directly affected by a future cap to tackle the issue objectively, from the perspective of societal rather than individual benefit. Crucially, it must be this societal benefit, which drives decision-making behind a price cap, and the benefits the country could reap from it are plentiful. There are two price caps on salaries which could be introduced: a true or de-facto cap, with neither being notably less beneficial than the other. A true cap would instruct a company on a limit that executives, as defined by an Act of Parliament, could be legally paid, including bonuses, each year. Ideally, the Act would also prescribe that this leftover cash would then be redistributed to lower-salaried employees, who would inevitably have a greater marginal propensity to consume than the executives, improving their individual lives and further stimulating economic growth. A de-facto cap would result in a tax tailored to executives, capping their salaries at a set level, supplementing the funds available to the government for necessary infrastructure such as the suffocating NHS.

However, while the principle of capping executive salaries to benefit all of society is vital, it must be stressed that it should only be instituted if the government equally prescribes where these funds should be used. Is it worth capping the salaries of executives if companies will just use the same funds to expand their fleet of company vehicles or supply the fuel for the corporate jet? Without this, an introduction of a salary cap will be a meaningless statement, which changes little except for the Prime Minister and the Chancellor of the Exchequer being able to proudly give themselves a "pat on the back" at the next question time in Parliament.

Therefore, a cap on executive salaries should without question be instituted; the only people who would oppose it would be the executives themselves and the politicians in Westminster, who require their votes, but more importantly donations, to maintain their positions. The question of whether there should be a salary cap is not really the question that requires an answer in a cost of living crisis affecting millions. It is the question of how that will determine whether we should have done it in the first place.