George Osborne has ushered in a new age of austerity – but the chill wind has yet to be felt in the British boardroom, still less in investment banking. To take just a couple of recent examples, JP Morgan Chase set aside a cool $5.8 billion to cover six months worth of salary and bonus payouts, while rival Goldman Sachs earmarked $3.8 billion in pay and bonuses for the second quarter, even though its profits fell by more than 80%.

 

In the current climate, it is less easy to brush off public anger as the politics of envy. The pressure is on banks and companies in general to convince the public and their shareholders that these rewards really are justifiable.

 

There are signs that large institutional investors, who are not normally prone to populist bonus-bashing, are becoming more militant. This year’s AGM season saw heavy protest votes at companies including Tesco, where 47% of the ballot registered objections to executive remuneration – one of the biggest ever pay revolts in corporate history.

 

At advertising group WPP, more than a fifth of shareholders expressed their dissatisfaction, and a similar proportion protested at Cable & Wireless. There was a flashpoint at M&S over new chief executive Marc Bolland’s first year reward package, and others have come in for criticism including property company British Land and fashion house Burberry.

 

The assault on top public sector pay – where some highly paid individuals at least do jobs that people understand and consider to be meritorious – makes it harder to see how executive remuneration can continue unchecked. The case of Mark Elms, the head of Tidemill primary school in Deptford who was criticised by politicians for taking home a package of nearly £250,000 is interesting in this context. Parents and governors, far from being outraged, rallied to his defence as an inspirational teacher who had transformed a failing school.

The lesson here is that key stakeholders do not view high pay as reprehensible per se. They will support rewards if they can see a clear linkage to exceptional performance that has produced tangible benefits for the community as a whole.

 

 

In the corporate sector, it is harder for the public to see these connections, if indeed they are present. Worse, executives are often perceived to have made large personal gains from strategies that harm the wider community, such as cutting jobs or embarking on environmentally questionable projects.

 

Companies need to listen more carefully to what their stakeholders are telling them, otherwise remuneration policies will fall further into disrepute. The bonus culture was tolerated during the boom, but now it is fostering division and distrust.

 

If the UK economy is to return to prosperity, we need business leaders who can command widespread respect. Instead, they are viewed with widespread cynicism.

 

Companies are undermining their own interests by allowing this toxic situation to continue. It is dangerous to allow excessive rewards to corrode the public’s faith in business at a time when we desperately need support for our corporate sector to help pull us out of the slump.