The executive entitlement culture

Sathnam Sanghera was HR-bashing again earlier this week, claiming that HR executives are grossly overpaid. His evidence for this assertion was the list of the top twenty highest paid public sector HR professionals published in HR Magazine. But, while Sanghera noticed that half the people in the list were employed by the BBC, he spectacularly missed the point yet again. As I said when he wrote a similar diatribe last year, HR functions reflect the culture and behaviours of their wider organisations. The BBC is a notoriously profligate organisation, especially when it comes to salaries for its top people. The executives who feature so prominently on this list are not highly paid because they are HR people; they are highly paid because they are BBC people.

Others have picked apart Sathnam Sanghera’s piece so I won’t waste any more time on it here. It does, however, raise the question about why BBC salaries should be so high. It is reasonable to assume that if BBC HR salaries are so high relative to other public sector HR professionals, similar relativities will apply in the other professions it employs.

It is nearly fifty years since Barbara Wootton wrote the Social Foundations of Wages Policy, in which she reached the then revolutionary conclusion that social factors are as important as economic forces in determining how much people earn. Social norms, customs, relationships and proximity to power are, she argued, just as important as scarcity and demand for labour. Or, to put it more bluntly, doctors and accountants are highly paid because they are doctors and accountants, and everybody knows that doctors and accountants are highly paid. It has very little to do with the scarcity of their skills.

The more an organisation is shielded from cost pressures, the more important these social factors become. If you are in a management job in a public sector or large private sector bureaucracy, the ‘people-like-us’ factor comes into play. When I first started dealing with management pay I was surprised at how quickly senior executives rolled over in the face of demands for salary increases from their direct reports. The same bosses that would be hard-nosed about holding down shop-floor pay would go to great lengths to find an extra few grand for Fred or Bob. At first I didn’t understand it. I tried to reason with them. The conversations went something like this:

“I’d like to give Bob an extra £5K on his salary.”

“Five grand, that’s a bit of a hike isn’t it?.”

“Well he’s been offered another £4K by XYZ over in Essex.”

“But Bob only lives down the road. Is he really going to drive half way round the M25 every day for an extra four thousand? Do you really think he’d go or is he just trying to push you into giving him an extra rise in advance of the pay review?”

“Erm…well, we can’t risk losing good people. I want to give him an extra rise.”

And so it went on. This was a few years ago and the numbers will be higher now but the process will be much the same. Eventually I came to realise that executives liked to raise the salaries of their direct reports because it helped them to justify their own pay increases. Their bosses would then collude with them for the same reasons and so on up the management chain. 

Underpinning this attitude is a sense of entitlement. The closer you are in the social hierarchy to your manager, the more likely he is to see you as ‘people-like-us’ and reward you accordingly. People-like-us get good salaries. We don’t wait for the annual pay review like everyone else. We travel first class on aeroplanes and trains. We stay in the best hotels. We tack a few days onto foreign business trips to play golf and see the sights. And when we leave the company, we are paid a large sum of money, regardless of our reasons for leaving. We are rarely disciplined in any formal way and are hardly ever sacked. 

Executives collude with this sense of entitlement because to challenge it would implicitly threaten their own entitlements. Better to maintain the assumption that people-like-us are allowed perks-like-this. BBC Director General Mark Thompson betrayed that mind-set earlier this week. “We are not a county council,” he sniffed when commenting on the generous salaries and benefits paid by the corporation, “If you want someone to run BBC One or develop iPlayer, you need the very best people in the world.”  He was, of course, referring to the BBC’s future media and technology chief for whom, it seems, even ordinary taxis are just not good enough.

But notice, also, the attempt to justify the largesse in economic terms. No-one will actually admit that they pay executives large amounts and allow them to travel by limo because that’s just what people-like-us do. They have to pretend that there are business reasons behind these decisions.

We heard the same argument from the bankers. If we don’t pay huge bonuses, all these talented people will go elsewhere. And, whatever you do, don’t tax their bonuses or they’ll all skip the country and our financial services industry will be ruined.

As it turned out, though, the bankers’ mass exodus didn’t happen. Could it be that, like Bob at my old company, their better offers from elsewhere were not that good after all? Is there less demand overseas for London bankers than we were led to believe? Are the financiers really globally mobile or are the ties that bind them to this country as strong and as difficult to untangle as they are for ordinary mortals?

Similar factors must surely apply to the BBC. The Beeb is a unique organisation. It is one of the most recognisable brands in the world. Is there really anywhere else where so many people could find such highly paid and, at the same time, prestigious employment? Sure, some of them might leave for more pay elsewhere but there are only a few organisations in the world that could offer similar opportunities. There will always be a queue of willing and very talented wannabes to replace those who go. I know people who have worked for the BBC. They always feel a loss of status when they leave, even if they have gone somewhere else to earn more money. The reaction that BBC employees get when they tell people who they work for is worth quite a lot. The BBC could get away with paying its people a lot less and most of them wouldn’t leave.

Many executives, if they spend long enough in the large monopolistic bureaucracies, come to almost believe the justification for their own high salaries and perks. They and their peers become caught up in a self-reinforcing myth in which they convince themselves that they really could command even bigger salaries elsewhere and that they really are so crucial to the organisation that it must pay ever more exorbitant amounts to retain them. Their fellow executives collude with this myth because it suits everyone. It’s another of those self-serving cognitive biases. I’ll call it the L’Oreal Bias – we are highly paid, we travel first class, we order £100 bottles of wine on the company and we never get sacked –  “Because We’re Worth It!”

Until recently, non-exec directors, governors and trustees have colluded with this excess, for the most part because they often come from the same social milieu and enjoy similar benefits themselves. But there is nothing like a traumatic financial crisis for breaking long-established patterns of behaviour. There are signs that shareholders and taxpayers are starting to call their top executives’ bluff over pay. The shareholder revolts at Shell and easyJet are encouraging developments and recent PwC research indicates that pay and bonuses for senior executives in 2009 were nowhere near as excessive as in previous years. PwC’s Tom Gosling noted “an increased willingness of shareholders to deploy their vote against the remuneration report.” Let’s hope we see more of it in coming years. A similar attitude among public sector NEDs, governors and trustees would be good too.

For the truth is that few senior executives are as talented or as irreplaceable as they like to think they are. The same applies to the presenters on whom the BBC lavishes so much of the licence-payers’ money. In my experience, most times when you face down blackmail over pay levels, the people who claim to be worth so much suddenly back off. On the rare occasions when they do leave for higher paying jobs, you can usually replace them with someone else.

Remuneration committees, especially those in the more insulated organisations, need to challenge this entitlement culture. This is particularly important for an organisation like the BBC with its uniquely privileged position as a public body able to raise its own taxes. Hard-pressed licence payers will grow impatient with senior executives who display this arrogant sense of entitlement. Perhaps the BBC trustees should follow the example of Shell’s remuneration committee and curb the excesses of their senior managers before the licence payers stage their own revolt.