CEOs Must Demand Raises—the Market Depends on It

If you get steamed about CEO compensation, then you'll love Mervyn King, governor of the Bank of England, who has been winning major kudos in the British press for turning down a salary increase earlier this year.

The BOE's annual report said a review committee determined King was entitled to a raise of about a third—from 290,000 pounds (about $575,000) to as much as 400,000 (about $794,000). But King has previously "called for wage restraint to keep a lid on inflation," the Guardian reports, and so found it appropriate to refuse the increase and remain at his current salary.

Well, hold back Lucy Kellaway, the terrific columnist at the Financial Times, who calls out King for his "lousy" example of leadership (emphasis is mine):

For a capitalist economy to work, we all need to believe that more money is better than less money, and that a pay rise is a good thing. To set a good example to the rest of us, chief executives must be sticklers about taking their rises, just as they must be sticklers about taking their holidays. ...

In fairness to Mr. King, he is not in charge of the system that determines his pay. But a CEO who turns down a pay rise should not get applause: he should be sacked for presiding over a pay system that produces a number so far in excess of what he deserves. The solution to excess pay at the top is not to curry favour by waiving rises, but to sack the remuneration committee and start again.

An even more objectionable thing about turning down a rise is that it muddies the moral waters. If the CEO doesn't take his money, is that a message to the troops not to take theirs? Or is it saying that the moral high ground belongs only to the man at the top; that only he can rise above the grubby business of money and that those below are lesser beings who can be excused for having their noses in the trough?

Kellaway also envisions a predictable result, if PR minds are at all on the ball: compensation committees recommending insanely high salaries just so the CEO can win favor by refusing them.