A week is a long time in politics, but it also sometimes seems to move at a glacial pace.
It is now two decades since Bill Clinton won the presidency on the slogan that ‘trickle down economics’ doesn’t work. Yet even a couple of years ago, there was Labour’s Peter Mandelson being ‘relaxed’ about people getting ‘filthy rich’.
Well, finally things seem to be shifting. Even Max Hastings, of all people, writes in the Financial Times that “gross disparities seems likely sooner or later to promote an upheaval, perhaps graver now than most western societies can now envisage.”
It certainly seems to have done so in the Arab world. Yet most western governments are still flummoxed about what to do about the staggering greed of executive pay.
There is a growing understanding that allowing one small class of ubermensch to emerge undermines social cohesion. It is also inflationary, pushing the price of London homes up to levels that only ubermencsh can afford without ruinous debt.
All that is before we even open a copy of The Spirit Level to see the likely consequences of an increasingly unequal society.
Hastings was responding to a survey which showed that FTSE chief executives were earnings were up 32 per cent last year alone. The problem is accelerating.
Nor is it clear, without major shareholder activism on the part of currently supine institutional shareholders, how this problem is going to be tackled.
What we can do, as Andrew Simms and I set out in our report The Ratio for the New Economics Foundation, is strengthen the hands of the activists by insisting that companies over a certain size should publish what we call The Ratio.
The publication of the crucial ratio between lowest and highest paid in every public company would encourage debate about pay and corporate responsibility.
It would, we believe, kickstart a more informed debate about what kind of pay gap is acceptable and what is simple divisive and inflationary. It would also have a healthy effect on both on fairness and equity in the UK, and on the companies themselves.
Our recommendation is every public company should be required to reveal this, and also companies seeking government contracts which are over a certain size.
The sooner we can make this happen, the sooner it will start drawing investors’ attention to what are the most important and relevant aspects of corporate pay.
While disclosure of the size of CEO salaries, as happens now, may simply tempt remuneration committees into greater levels of excess, disclosure of the ratio can potentially shame or guide the corporate world into more equitable arrangements – or to explain why they are genuine exceptions.
We also believe that this will be good for the companies themselves. It will allow them to row back the levels of greed and excess that have prevailed over the past decade.
That alone will save them on average around five per cent of their annual revenues (if they are to return to 1993 levels of CEO pay) which they are paying so inefficiently at present.
It will also require them to take some account of a measure of equity that we have known for some time is also an indicator of corporate success.
Exactly how that success might be measured requires further research, but companies that had a lower pay gap, as revealed in their ratio, are demonstrably better corporate citizens, with longer time horizons and a better understanding of the value of their own staff.
We also know there is a link between high quality work and pay equity within companies.
The sooner we can insist on the publication of the ratio, the sooner we can begin to see which companies are poised for success and which remain corporate dinosaurs waiting for their next government pay-out.
David Boyle is a fellow of the New Economics Foundation and co-author with Andrew Simms of The Ratio.