With the recent BBC article releasing the data which shows Chief Executive pay rose by 11% last year to around £4 million, the calls began once more to force these large companies to produce pay ratios.
This reporting requirement would look something similar to the Gender Pay Gap reporting requirements, however, the sympathy I have for the Gender Pay Gap requirements would not extend to this.
By introducing the requirement to report the ratio between executive pay and the lowest paid worker in the company, you are not solving any issues, and I’ll explain why.
Firstly, as we have seen with certain people working for the BBC who have given up large pay rises, these pay rises then didn’t go to staff who were paid less. The same thing would happen here as well. If a Chief Executive turned down a pay rise, it wouldn’t suddenly go to employees on minimum wage. Most likely, it would be kept in the bank.
Secondly, it is already possible to find out the data from public companies. If a company is listed on the stock exchange, it has additional reporting requirements already, including a more complete set of financial accounts. Pay of those at the top of the company is already publicly available for these larger organisations, so introducing this additional reporting requirement is just doing work that is already available.
Thirdly, Chief Executives and other members of the Board, could instead use a different style of remuneration, rather than just salary. They may get large pension contributions, they could get stock options or whatever else. This would make the figures look better, but is it going to increase the pay of the lowest paid? No.
There are reforms to make around wages and the labour market which would be far more effective at dealing with this issue than trial by headline.
This BBC article raises an interesting question about whether you should be asked what you currently earn. I personally think that no you shouldn’t be asked because one of the reasons you may be leaving is that you are underpaid in your current position.
What I think we should instead do is require that job adverts submit a pay scale, rather than simply being able to say competitive and then asking the prospective employee what they currently earn to come to the pay you will be offering.
As well as this, we can look at both the Minimum Wage and the Tax Credit system. Tax Credits are being cut in real terms putting a further squeeze on the living standards of individuals and the Minimum Wage has not resulted in the job losses that were predicted when it was introduced – employment is at an all time high despite a large increase in the Minimum Wage recently.
I would love to say that the thinking behind publishing pay ratios of Chief Executives versus the lowest paid is well thought out, but it simply isn’t. It won’t solve the issues that people are trying to solve, will create a trial by media rather than trial by stakeholder process and it is unproductive given that the pay is already in the public domain. We should not support the introduction of this.
* Collingwood is a Liberal Democrat member in London who is known to the editorial team.
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17 Comments
Mr Purvis is correct to say the party should revisit tax credits.
The only problem is that the last time tax credits were visited – when the party was in government – they cut them. The best predictor of future behaviour is past behaviour – but let’s hope that it’s time for sinners to repent and to display otherwise.
Increasing the personal allowance was a much better policy than paying tax credits to people on average incomes.
@Joe Raising the Personal Allowance has been terrific, I would like to see the NICs thresholds increased accordingly which I have talked about in a previous article. Tax Credits already work in a similar way to what proponents of Negative Income Tax hope for, so I think that’s worth keeping in mind. It can be quite a simple form of welfare that enables work to pay. It doesn’t necessarily have to be a one or the other.
@David Unfortunately so, but just because we have done something in the past doesn’t necessarily mean we have to do it again. The Coalition did plenty of things that I think was tremendous, including raising the Personal Allowance against Tory opposition, but there are also areas for improvement such as Legal Aid.
Nothing the Government has tried has worked, and you have to wonder if they are serious – the market for top salaries is dysfunctional.
Here is a proposal : Tax the companies that pay these high salaries (not the employees).
Introduce an additional Employers’ National Insurance Contributions (tax) bracket based on the total pay. This tax mechanism is well established.
The tax would be triggered by salaries of (say) £500K of total remuneration so most small companies would pay nothing. Tax the whole of any salary package that exceeds the trigger level.
No allowances or exceptions – to minimise scope for tax avoidance.
The initial tax rate could be low to introduce the change. Progression to a rate of (say) 20% might be appropriate.
Switching to how the other half live…….. Interesting to note that the failed chief exec of the TSB has walked away with a tidy £ 1.5 million pay off. Nice (lack of) work if you can get it.
Tom,
Joseph Stiglitz was commenting on rising inequality in the US recently http://uk.businessinsider.com/joseph-stiglitz-milton-friedman-capitalism-theories-2018-3 saying” And while the increasingly linked nature of CEO pay and stock performance was ostensibly to keep CEOs accountable to their shareholders, Stiglitz argued, it instead materialized as “an incentive to manipulate stock prices by using company money to buy back shares in order to drive prices higher.” That’s how you got from the average ratio of CEO-to-median-level-employee pay from 20-to-1 in 1965 to 295-to-1 today.
For Stiglitz, the moral outrage isn’t that individuals are making large amounts of money, it’s that it’s happening at the expense of the entire economy.
Of course, Stock buybacks and executive remuneration packages that are tied to increases in earnings per share (which stock buybacks do automatically) are as prevalent in the UK as they are in the USA.
It needs some thinking about, but personally, I would look at tax reform, job guarantees and universal basic income in preference to minimum wages and means-tested tax credits.
Joe OttenJoe Otten 4th Sep ’18 – 10:45am…………………..Increasing the personal allowance was a much better policy than paying tax credits to people on average incomes……………
Really? The allowance increase did nothing for those earning up to £9,999 and yet helped those earning £41,864.
By 2014 it had cost the government £10.7bn in tax revenues but the rises in VAT which most adversely affected those on the lowest incomes more than offset any rise for them.
To put it simply; if there was room for a £10.7 bn giveaway why wasn’t it concentrated on those in real need?
@expats, you say that “the rises in VAT which most adversely affected those on the lowest incomes”. Once those on the lowest incomes have paid for their zero rated food, exempt rent and their 5% rated fuel there will be little if anything left to spend on VATable items.
Perhaps this is a “both and” matter rather than an “either or” one?
Public knowledge, opinion and influence matter, as do direct political-economic-social actions.
“Awareness, acceptance, action!” is a pretty accurate axiom and guide which our party could use to the benefit of the many and itself.
“Because the evidence shows that few people are aware of the actual scale of inequality and injustice in our society, or recognize how it damages the vast majority of the population, the first task is to provide education and information.”
https://www.equalitytrust.org.uk/resources/the-spirit-level
@Iain Donaldson “there will be little if anything left to spend on VATable items”
I recall debates on this site several years ago about whether or not increasing VAT was regressive which depended upon considering it as a proportion of expenditure instead of income which is more usual.
Either way, in 2010 I voted for a Lib Dem party which warned against a Tory VAT bombshell (https://www.newstatesman.com/blogs/the-staggers/2010/06/lib-dems-vat-rise-tax-poster).
I agree with Tom Purvis that we should increase the UK’s minimum wages. We should have a policy to introduce Regional Living Wages at 70% of median earnings for that region, by the end of the next Parliament. In April 2017 60% of national median earnings was £8.25; the highest regional rate at 70% would have been London £12.12 and the lowest Wales £8.72.
I think Tax Credits are not transparent. Universal Credits should be. Therefore we should increase the Universal Credit rates to the poverty level. Again by the end of the next Parliament. It would cost lest than it cost to increase the Personal Allowance from £6475 to £10,660. And it would ensure that no one in work was living below the poverty line, it is estimated that 4 million people in work in the UK are living below the poverty line.
The simplest way to reduce the pay ratio between highest and lowest within a company is of course to outsource the cleaning and other low paid jobs.
Of course if you keep pay ratios secret the public won’t know what they are in order to demand change. A more Conservative view is hard to imagine than one that denies the public information and keeps them in the dark. Liberals would want to shine the light, expose the truth and be part of the overdue change towards a fairer society.
Iain Donaldson 4th Sep ’18 – 4:06pm………………..@expats, you say that “the rises in VAT which most adversely affected those on the lowest incomes”. Once those on the lowest incomes have paid for their zero rated food, exempt rent and their 5% rated fuel there will be little if anything left to spend on VATable items………….
I assume you are being ironic. Failing that, there must be an awful lot of shoeless, naked Mancunians.
My first reaction to an issue like this is: what do other countries do and can we learn from their experience?
We need a more meaningful statistic, perhaps comparing the top 10% with the bottom 10%. The data could be collated anonymously with privacy assured. Similarly with the gender pay gap.
I agree with Adrian Sanders that we should be shining a light into dark places and one of the the places is the salaries or income of wealthy people. There are others of course, but because of income tax increases stopping at a relatively low level a lot of statistics are produced about the tax most of us pay and it is implied that those above aren’t worth worrying about, that there aren’t that many people on salaries of £100,000 or more and the tax received from them wouldn’t meet the cost of collecting it.
I think it’s worthwhile looking at the luxury goods those people are in the market for. My husband ran a charity for the homeless but now he’s retired he buys a boat magazine when we go on holiday. He was interested in one of the 200 best boats you can buy. Of course we can’t afford to buy it but you might think of chartering it for a week for a very special trip? Unfortunately you would have to pay £800,000 to do that. Yet there are enough people who can afford this for there to be 200 different luxury boats for them to spend their money on.
We have created a society of new aristos and the newly poor, as well as those who have been poor for several generations, many of whom are working for a pittance while the rest of us are relatively happy to fall into the comfortable category, unaware that some people worry about how they can afford a better boat.
This is not the kind of society Liberals have worked for over the centuries and extremes of poverty and wealth create an uneasy society, ripe for exploitation by those who promote hatred and greed.