Bank of England chief backs CEO pay restraint

AP News
Posted: Jan 24, 2012 3:39 PM
Bank of England chief backs CEO pay restraint

The governor of the Bank of England has joined calls from government and Parliament for banks and other big businesses to curb lavish executive pay.

Mervyn King also said Tuesday that there is scope for the bank to pour more billions into economic stimulus, a step some analysts believe could come as early as next month.

Speaking in Brighton, King said those who set executive pay need to accept that the market economy relies on a perception that rewards are distributed fairly.

"The legitimacy of a market economy will inevitably be challenged if rewards go disproportionately to a small elite, especially one which benefited from the support of taxpayers," King said.

Major British banks, both those that were bailed out and those which benefited from the implicit support of taxpayers, are now in the spotlight of public concern about high pay and the bonus culture.

British Business Secretary Vince Cable said Monday his government will be making proposals this year to give shareholders more clout to curb excesses.

"The tragedy of the financial crisis is that those who have suffered most have been those who bear no responsibility for it, and who, whether employees or businesses, accepted the disciplines of a market economy only to find that others were excused that discipline because they were 'too important to fail,'" King said, again pointing to the financial sector.

The High Pay Commission, an independent body, reported last year that executive pay in Britain's top 100 corporations had risen far faster than overall pay.

At oil company BP, for instance, the top executive was paid 63 times the company's average pay in 2009-2011. At Barclays bank the multiple was 75 times, as was bailed-out Lloyds Banking Group.

Since December 2009, the Bank of England has spent 275 billion pounds ($430 billion) to buy high-grade assets, including government and corporate bonds, a program known as quantitative easing.

The Bank's Monetary Policy Committee, concerned about the lagging growth of the U.K. economy, authorized the latest injection of 75 billion pounds in October.

"With inflation falling back and wage growth subdued, there is scope for interest rates to remain low, and, if necessary, for further asset purchases, to prevent inflation falling below the 2 percent target," King said.