Executive Pay

A Biblical Case for Capping Executive Pay

A broad swatch of mainstream religious leaders, across the Atlantic, now want to see top executive compensation tied to a fixed multiple of what companies pay their lowest-paid workers.

By Sam Pizzigati

Over recent years, on both sides of the Atlantic, church groups have been among the most consistent critics of excessive executive pay. At shareholder meetings, church leaders have spoken out — often eloquently — against the lavish rewards that continue to collect at the corporate executive summit.

Ethics bookBut this eloquence hasn’t, by and large, accomplished much, the prime reason why the Church Investors Group — an alliance of Anglican, Catholic, Methodist, and Baptist church financial officials from Britain and Ireland — recently asked two leading theologians to cast a fresh eye at executive pay.  

Could churches be doing more as investors, these mainstream denominations wanted to know, to rein in excessive pay? What specific pay criteria, they went on to ask, make the most ethical sense? Can religious wisdom offer investors any practical guidance?

Last week, the two theologians commissioned to cogitate on these questions, Richard Higginson and David Clough, delivered their final report. Church leaders immediately embraced it.

“We have long expressed our objection to the natural injustice of many company pay policies by voting against significant numbers of them,” noted Bill Seddon, the top executive of the Methodist Church Central Finance Board. “Now we have firm theological foundations to support our stance on this issue of morality.”

The churches actually have plenty more than that. The new guide before them, The Ethics of Executive Remuneration, doesn’t just cite biblical chapter and verse. This new guide offers church investors what, until now, they haven’t had: a practical yardstick for determining what qualifies as “just pay” and what doesn’t.

“Just pay,” The Ethics of Executive Remuneration reasons, ultimately boils down to a matter of differentials, the gap between top and bottom.

In any modern enterprise, note authors Higginson and Clough, success depends on contributions that come “from the highest position to the lowest.” All who labor play a role, and all who labor, biblical teachings make plain, merit treatment that “accords them the dignity they deserve.”

So what specifically can church investors do to help ensure that dignity? They can insist, recommends this guide to ethical investing, “that executives should never receive a total remuneration package worth more than 75 times the average pay of the lowest paid 10 percent of employees of their company.”

Add the authors: “Over time, through shareholder engagement with companies, we would hope that this figure could be reduced.”

Britain’s top corporations currently don’t meet this proposed 75-times standard. U.S. corporations don’t even come close. UK chief execs make 100 times the pay of average workers. American top execs make 319 times average worker pay.

In both cases, of course, the pay gap between top execs and the lowest 10 percent of the workforce — the baseline The Ethics of Executive Remuneration recommends — runs even wider.

signupCould churches actually make good things happen with this 75-times “maximum ratio” approach? The UK Parliament, interestingly, is already considering legislation that would require companies to publish the ratio between what they pay top execs and what they pay the bottom 10 percent of their workforces.

This legislation, if enacted, would help make top-bottom pay ratios an entirely appropriate topic for corporate shareholder debate.

If church investors pressed that debate, they might not win shareholder majorities for a maximum top-bottom pay ratio. But the churches behind The Ethics of Executive Remuneration, with their combined £12 billion in assets, have another option.

These churches, suggest Higginson and Clough, could and should disinvest in any firms “at strong variance” with the approach to “just pay” their report proposes.

This could get interesting.

Sam Pizzigati edits Too Much, the online newsletter on excess and inequality published by the Washington, D.C.-based Institute for Policy Studies. Too Much appears weekly. Read the current issue or sign up to receive Too Much in your inbox.

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