Yesterday saw the publication of the interim report from Will Hutton’s Review of Fair Pay in the Public Sector, commissioned by the government.
The bald headline from the report is one of modest reform: moving toward recommending the introduction of a 20:1 maximum ratio between the top and bottom salary in any public body. This ratio is more generous than existing pay arrangements, but it is more radical than that superficially makes it appear.
First, the ratio has been increasingly and is likely to continue to do so, particularly with public sector structural reforms the government is planning. So introducing a cap that looks modest now may yet have a radical impact in the future.
Second, as I wrote in June:
It provides a fair pay benchmark which campaigners, pressure groups and the public can use more widely. Whatever is decided to be the formal extent of its applicability, there is nothing to stop people pushing for its wider adoption and there is good evidence that pay at the very top of the private sector has got out of control, increasing far faster than profits, turnover or other performance would justify. Partly because of the number of firms who set their top pay saying that it must compare well with the rest of the sector, there has been a self-reinforcing upward spiral in pay as everyone pushes up everyone else’s top pay.
A 20:1 ratio would still allow for generous top pay, but stop that cycle – if it ends up applying more widely. Whether or not that happens is not just a matter for central government. For example, even if the government holding the majority of shares in a bank does not mean the 20:1 ratio applies to that bank, that doesn’t stop a campaign to introduce such a ratio. The use of the 20:1 ratio across large parts of the economy will provide a clear benchmark that will make those sort of wider campaigns more effective.
It’s easy to see how over time the 20:1 ratio could become a standard applied to suppliers to the public sector, by ethical investment funds, by good corporate practice lobbyists and more.
The full report (or at least the executive summary) is well worth a read, particularly for information such as this graph:
Follow @libdemvoice.org on Bluesky
Like us on Facebook
Subscribe to our feed
Sign-up for our daily email digest
Remembering Liz Truss and her dogs that barked at drones
We do have a two-tier policing system but it is not what our homegrown racists think it is.
From Norman settlement to a civic square
Church Green video
Ruth Bright
Tom Bailey
Alex Macfie
William Wallace
7 Comments
Excellent post Mark. The proposal is sensible and fair. It would also put moral pressure on private sector firms to adopt it, and facilitate campaigns by the public to force their favourite private companies (Virgin, BA, Tesco, etc) to follow suit…
Will these reforms be applied to the executive pay of the banks the public currrently own a huge chunk of?
No.
They will not.
And it’s laughably unlikely that any private sector firms are going to voluntarily adopt the 20:1 ratio.
I didn’t see much sign of ‘moral’ behaviour during the bank crisis and the price gouging behaviour of the energy companies right now is equally contemptable.
But these pay constraints might keep the right wingers happy as it feeds into the public sector bashing narrative that Cameron and Osborne have been running so enthusiastically.
Of course they are pretty meaningless since the 20:1 ratio doesn’t currently affect anyone in the public sector as you concede, but the headlines will be enough to satisfy Cameron’s right wing. And that, after all, is about the only thing that seems to matter these days.
@LDV Bob:
I’ll put money down that a number of private companies would quickly start adopting the rule if the public sector did. Those that refuse to will become known to the public and they can adjust their purchasing habits accordingly.
How sad that we live in a society where the suggestion that there should be a 20:1 ratio between the highest and lowest paid employees in a public sector organisation is considered ‘radical’.
Is that graph for all employees or just public sector employees?
It is an interesting and depressing trend. One thing that is ignored in the discussion of high pay is that a chief executive’s pay isn’t just a reward for his or her work: it’s also a carrot to motivate the CEO’s subordinates to compete for promotion (according to “tournament theory”, as described in a chapter of Tim Harford’s book The Logic of Life).
If that is the case then one way of reining in top pay is to change the way workplaces are organised so that promotion depends less on relative outperformance of your colleagues and more on absolute benchmarks. The problem we face is that in most businesses (and almost all public sector work) it is very difficult to clearly see how much each employee contributes to the organisation. Authors are paid royalties because the number of books sold is an objective measure of performance, but what objective measure can you think of for a doctor’s performance?
When Hutton was speaking on 5 Live yesterday, he was talking about 20x median pay, not 20x the lowest. His example was the BBC where lowest pay is about £18,000, which would give a maximum of £360,000, but Hutton’s example was 20x £36,000 median pay, which left Senior Executives earning £720,000 a year.
Why on earth would anyone take anything Will Hutton said seriously. While the 180k Chief Exce of the Work Foundation he drove it into bankruptcy with a £26m pension deficit.