Tag Archives: pay inequality

The market is not a fair arbiter of incomes

What is an employee worth?   Whatever the market pays is the conventional answer.   But the market is not based on merit or justice, it’s based on power relations.   Those who have the power will exert it to get more and more, while those who have little or no power will get squeezed and pushed down even further.   Against that background the fact that a thousand companies (out of 4.9m in Britain), including 18 FTSE-100 companies,  have now committed to pay the living wage or above is seen as seen as a triumph.   The chief executive of Ogilvy and Mather, the global communications company, chanted “We will wear our badge with pride”.   Really?   The living wage is all of £7.65 an hour, £8.80 in London, and not paying it before now should be a badge of shame.   Nor with this minimum hike in wages will the ratio between top and bottom incomes in big companies like Ogilvy and Mather alter much: it will still be at least 185:1.   The distribution of wages is still desperately unfair.

Just how unfair it is is shown by how that ratio has changed in the last half century.   Today chief executives of the FTSE-100 companies take home on average total remuneration of £4.5 millions, or £86,540 a week.   An employee in those firms getting the living wage would take home £283 a week.   The ratio therefore between the chief executive and his living wage employee is 306:1!   Half a century ago it was 40:1.   The near 8-fold increase in that ratio has nothing to do with a more brilliant performance by the chief executive, since capitalism has performed notably less well in the last forty years compared with the preceding forty.   It has all to do with the dramatic growth in corporate power, matched tragically by the big decline in collective bargaining and the suppression of trade union activities.

Nor are the excesses confined to the corporate world.   In soccer, at the top end of the Premier League, players are now earning in the region of £180,000 a week, or £9.36 millions a year, and that is before sponsorship and image rights are included.   Even the most average of players in the league take home more than £1 million a year, as do the coaches.   How does that compare in merit or justice with 21% of all UK workers being paid below the living wage, including 85% of bar waiting staff, 43% of part-time workers, 72% of 18-21 year olds, and 27% of women (compared with 16% of men)?   Yet all these latter jobs are important – otherwise the workers wouldn’t have been taken on at all – but that doesn’t stop them being paid 643 times less than top footballers.   That cannot be justified on any conceivable rationale.   Before inequality explodes with riots in the streets, we need a public debate on what the limits of greed at the top and misery at the bottom should be.


Bob Diamond should be the target, not Ofcom

David Cameron has just produced an interesting idea – link top earnings to those of the lowest paid.   It’s just that there are three things wrong with it.

His proposed link is that no senior manager should earn more than 20 times the lowest paid person in their organisation.   Suppose the lowest paid employee is on the minimum wage which is £5.80 an hour.   That works out at £220 gross for a 38 hour week.   A salary 20 times higher would be £4,400 a week, or £228,800 a year, not far short of a quarter of a million.   A salary gap at that level when others on a mere £5.80 an hour cannot be defended.   The link between top and bottom should be no more tha 12 times, which would still offer a top salary as high as £137,300.

Secondly, Cameron suggests his idea should apply to the public sector.   Why only the public sector?    It’s in the private sector where by far the worst iniquities occur, as we learnt yesterday when it was revealed that one Bart Becht, boss of Reckitt Benckiser, pays himself (or is awarded by his remuneration committee – largely the same thing) £90 millions a year.   The target should be curbing grotesque private greed, not only Becht but others notoriously like Bob Diamond of Barclays paying himself £60o millions a year.

And Cameron said nothing about stock options, share incentive schemes, non-salary benefits, and bonuses where the real damage is done.   Becht for example got a salary of ‘only’ a million, but then cashed in share options worth £74 millions.   Not to include the massive extras which come to 10, even up to 90, times the original pay is a political sleight of hand which shows this pretence of being radical is nothing of the kind.