LSE: Excessive executive pay requires an ethical response
Questions of pay inequality – and very high pay at the top – are regularly the subject of public debate and, at times, popular outrage. In the UK, it has been central to recent controversies about income tax rates, executive bonuses, and pay distribution. And everyone, from politicians, think tanks and campaigners to the Archbishop of Canterbury, has an opinion on the subject.
But are executives themselves really the greedy, self-interested, fat cats of popular culture? Or do they share much of society’s concerns about large pay differentials and high levels of inequality? And if they do, why has senior executive pay increased so dramatically in the UK, US and other developed countries over the past 30 years?
In his new book, If You’re So Ethical, Why Are You So Highly Paid? Ethics, Inequality and Executive Pay, Professor Alexander (‘Sandy’) Pepper goes beyond economics and outrage to bring a unique philosophical, ethical perspective to these vital questions.
From a survey of over a thousand senior executives from around the world, Professor Pepper and colleagues found that business executives are not typically ethical egoists who believe they are entitled to act entirely in their own self-interest. Instead, the majority expressed support for a range of ethical beliefs on inequality and distributive justice. Many believe that in a civilised society everyone has the right to an income that is sufficient for a dignified life, and that companies, not just governments, have responsibilities to ensure that there is distributive justice in society.
Professor Pepper argues that soaring inflation in high pay is, instead, the result of a market failure, resulting in inefficient ‘follow-the-leader’ pay practices that are replicated across industries. Individual companies’ renumeration committees face a prisoner’s dilemma, and so recommend over-the-odds payments in the vain hope of obtaining superior talent.
So, he argues, this market failure in executive pay ultimately requires an ethical response from investors, companies, executives and government.
This is a book for anyone who wishes to understand and tackle business’s role in the growing social inequality of advanced economies in an informed, fair and feasible way.
Professor Pepper says: “I’ve been studying executive pay for over 30 years as an adviser and as an academic. This book is the culmination of a lot of my thinking.”
Deborah Hargreaves, Director of the High Pay Centre, says: “This is an interesting read with a new philosophical slant on the executive pay debate. It considers the ethical values espoused by the captains of industry to whom this pay is awarded, in the context of relevant philosophical ideas. It is breaking new ground by setting an economic argument against an ethical background.”
Professor Pepper is Emeritus Professor of Management Practice at LSE, where he has been teaching and researching since 2008. Prior to this he had a long career at PricewaterhouseCoopers, where he held various senior management positions, including as global leader of PwC’s Human Resource Services consulting practice from 2002 to 2006. His research and teaching interests include organisations and management theory, with a particular focus on the theory of the firm, corporate governance, and business ethics. Sandy is one of the UK’s recognised experts on executive pay.