02 April 2006
Competition Law
Executive pay in a large listed company is set by the Remuneration Committee. Most remuneration committees decide the appropriate level of executive pay by making comparisons with what other similar companies are paying. This practice is called Comparative Pay Positioning.
The big problem with comparative pay positioning is that almost all companies want to pay their executives an average amount or more than an average amount. Of course this is impossible because, by defintion, half of all executive pay must be below average, but this does not stop the remuneration committees from trying! Each year they increase executive pay to achieve average postion or better. Almost all remuneration committees do this so the level of executive pay is forced ever higher.
Comparative pay positioning creates a powerful upward ratchet on executive pay. It is therefore a price fixing mechanism and so it is illegal under competition law. I have been in dialogue with the Office of Fair Trading (OFT) who enforce competition law in the UK. The OFT should investigate and clamp down on comparative pay positioning before it forces executive pay up even higher.
Click here to open my first submission to the OFT (pdf file, 28 pages, 9th April 2005)
Click here to open the OFT's response (pdf file, 2 pages, 26th April 2005) reconstructed from scan.
Click here to open my second submission to the OFT (pdf file, 16 pages, 28th June 2005) attachments not included.
Click here to open the second response from the OFT (pdf file, 2 pages, 10th August 2005) reconstructed from scan.
Click here to open my third submission to the OFT; a letter requesting a market study (pdf file, 9 pages, 9th September 2005)
Click here to open a description of my exchanges with the OFT between September 2005 and June 2006 (pdf file, 3 pages, 9th June 2006)
Click here to see the antitrust case for the US market (Posted 3rd August 2006)
The big problem with comparative pay positioning is that almost all companies want to pay their executives an average amount or more than an average amount. Of course this is impossible because, by defintion, half of all executive pay must be below average, but this does not stop the remuneration committees from trying! Each year they increase executive pay to achieve average postion or better. Almost all remuneration committees do this so the level of executive pay is forced ever higher.
Comparative pay positioning creates a powerful upward ratchet on executive pay. It is therefore a price fixing mechanism and so it is illegal under competition law. I have been in dialogue with the Office of Fair Trading (OFT) who enforce competition law in the UK. The OFT should investigate and clamp down on comparative pay positioning before it forces executive pay up even higher.
Click here to open my first submission to the OFT (pdf file, 28 pages, 9th April 2005)
Click here to open the OFT's response (pdf file, 2 pages, 26th April 2005) reconstructed from scan.
Click here to open my second submission to the OFT (pdf file, 16 pages, 28th June 2005) attachments not included.
Click here to open the second response from the OFT (pdf file, 2 pages, 10th August 2005) reconstructed from scan.
Click here to open my third submission to the OFT; a letter requesting a market study (pdf file, 9 pages, 9th September 2005)
Click here to open a description of my exchanges with the OFT between September 2005 and June 2006 (pdf file, 3 pages, 9th June 2006)
Click here to see the antitrust case for the US market (Posted 3rd August 2006)
