Illustration: David Foldvari

When the chairman of the Nationwide building society (whose name, like Geoffrey Howe's, is Geoffrey Howe) tried to justify its executives' pay to a restive AGM last week, he said several strange things. Here's one: "What would the Financial Services Authority say if our chief executive was paid just £100,000? It would shut us down. Nationwide would cease to exist."

Is that true? Is that the system? Does the Financial Services Authority reckon that anyone who gets paid £100k or less must be incompetent? That's a very cynical view to take of members of the House of Commons. But, if it is true, it certainly justifies Nationwide in keeping its chief executive Graham Beale's salary above that threshold. A full £2.16m above it, to be precise. That should make sure the FSA takes Nationwide seriously.

But the main thrust of Howe's argument was marginally less wacky: "This is a society problem, this isn't a Nationwide problem." Although, if it's a problem with society, it may well be nationwide. But not exclusive to Nationwide. He continued: "There is a huge mismatch between what pop stars earn, footballers earn, business people earn, bankers earn and what the man on the street earns. A lot of people just find it hard to understand why there is such a big differential between what the man in the street earns and what senior business people earn."

So the problem, according to Howe, is a lack of understanding. Well, the first thing to clear up is the distinction between the "man on the street" and the "man in the street". It's quite important. I don't think many people are complaining that bankers earn more than the homeless. This "society problem" can only be exacerbated by the fact that, from the plutocrat banker's vantage point, it seems, the income of someone begging on the street and that of the average passer-by are indistinguishably negligible. But I don't think that's the lack of understanding Geoffrey Howe was referring to.

It was deft of him to liken Nationwide's highly paid executives to pop stars and footballers. "Let's spread the hate," he was probably thinking. And, of course, the huge earnings of some professional sportsmen and musicians wind a lot of people up, particularly now times are hard. But being cross because some people earn more than you is different from failing to understand why. I reckon almost everyone gets why pop stars and footballers are often rich: millions of people are willing to pay significant amounts of money to watch them do their thing. It's very easy to see where that money comes from and, if you don't like Stoke City or Lady Gaga, you don't have to contribute yourself.

But, when it comes to financial services executives, I agree with Howe that this lack of understanding exists – but I don't agree that it's a problem. I think it's a good thing. I think it's the product of the wisdom of crowds. People don't understand why bank and building society executives are so highly paid simply because there is no adequate explanation. It's an anomaly which, practically speaking, could only be corrected by the very people who benefit from it. That is a key failing with the current financial system.

The Nationwide AGM was up in arms over these remuneration packages yet only 9% of the society's members failed to approve them. Either most Nationwide investors are secretly delighted to give millions of pounds to Graham Beale or that's not a functioning democracy. It's probably because most of the voters are failing to scrutinise how their money is spent. Or they don't much care. Nationwide made £475m profit last year. In that context, the £7.9m being handed out to five senior executives doesn't seem to matter so much.

Howe argues the standard case that Nationwide must pay the going rate for high flyers or it will cease to fly high. That makes a certain amount of sense but fails to explain how this going rate was arrived at, or to allay people's suspicions that it's become artificially inflated. What is it that Graham Beale does that someone else couldn't do – someone who'd be willing to take a pittance like £100k? Despite the evidence of Parliament and the early series of The Apprentice, it can't only be feckless attention-seekers who are willing to work for that kind of money.

When Beale moves on – probably to an even more highly paid job at a bank – his successor will be similarly highly paid. Is that because he (or she) (probably he) will be one of a tiny number of people who also have the "Beale touch", that magical ability to make an organisation hugely profitable? Or will they just be highly paid because people in jobs like that always are and they're not going to stop being if they can help it. On some level, is massively overpaying executives a necessary part of engendering confidence in the whole house of cards that we now know the financial sector to be? The idea that a cut-price chief executive might do just as well is too insulting to the industry's self-image to be permitted.

If that's what's going on then a sort of reverse market effect is in operation – where, like with designer labels, the exclusivity of costliness makes an executive seem desirable, capable, even brilliant. What a disaster for shareholders and building society members, as well as customers and social justice, if that's the case; if all of our financial institutions are being led in nude mediocrity by little emperors declaring: "If you want clothes like these, you've got to pay! Financial crisis, you say? Just think how much worse things would have been left to the kind of chump who will work for six figures."

It's a striking contrast to how MPs talk about their pay. Chastened by the expenses scandal, they jostle to express their revulsion at any talk of a raise. They don't tend to say: "If you don't pay top dollar, you won't get the best people." Perhaps that's because it's too obvious that we won't and so we haven't.

The Independent Parliamentary Standards Authority's proposed House of Commons pay rise would apparently cost Britain, a $2.3trn economy, £4.6m a year – and the prime minister (among many others) tells us it's too much. The Nationwide building society is paying nearly twice that to five managers, and its chairman is convinced that it's barely enough. My hunch is that they're both wrong.