COMMENT: Fair pay? It comes down to toilet break maths

Written by Rebecca O'Connor on 30th Nov 2016

It is perplexing that, in the 21st century, after corporate scandal after corporate scandal after corporate scandal, some people still believe that regulation itself is to blame.

If Lord of the Flies taught us anything about ourselves, it should be that without rules and oversight, then exploitation, bullying and chaos are the result.

If BP’s oil spills have taught us anything, it should be that a company with the propensity to cause so much damage to the world and society should not be solely beholden to profit-hungry shareholders who want to drive costs down and revenue up.

If Volkswagen taught us anything, it should be that if someone thinks they can get away with something, they probably will.

This is the dark side of human nature. The side that gets greedy and carried away. The side that sacrifices others for its own gain. We police it reasonably effectively in civil society. We try, but so often fail, to police it in corporate life.

Trust in companies is often misplaced – the result of good branding rather than what is beneath the bonnet. Why should we believe what they say when they often have so much to gain from lying?

But cynicism isn’t too helpful either. What we need are plain facts, out in the open. And to do this, we need legal requirements that are enforced, not just written down and forgotten.

Enter, the proposal in a government green paper published yesterday to introduce salary ratio information for companies. If introduced, it would mean that companies would be obliged to publish the ratio of the highest to lowest salaries for all employees, which translates as: you get to find out exactly how much more than the cleaner the chief exec gets paid.

It’s a really good idea. Anyone who isn’t earning inordinately more than their co-workers thinks so.

For example Paul Ellis, chief executive of Ecology Building Society, which is a living wage employer and has a policy that the highest paid member of staff should not be earning more than five times that of the lowest paid.

“We welcome today’s proposal that companies may be required to publish pay ratios. We believe that gross inequality has an environmental cost, which is why we were among the first organisations in the UK to implement a member mandated fair pay ratio to limit maximum salaries. Our employees play a vital role in helping to deliver our mission to build a greener society and we believe that fair pay helps us reap business benefits such as lower staff turnover and improved customer service and overall satisfaction,” Ellis said.

Five times might still sound like a lot. In some companies, that figure could be closer to 300 times. How the value of anyone’s economic output can be worth 300 times that of another human is tricky to imagine, given universal time and resource constraints. Think about it like this: it means some execs can be paid more to go for a wee than their lowest paid employee earns in a day.


Some execs earn more in a loo break than the lowest paid employees earn in a day

Another supporter is Charles Cotton, pay and reward adviser at the Chartered Institute of Personnel and Development, said: “The publication of pay ratios is a welcome first step in addressing the broken system of executive pay. Alongside the presence of employees on remuneration committees, they will help build greater transparency over executive salaries and bonuses, and should encourage organisations to ensure there is a clearer link between overall top pay levels, organisational performance and the rewards of the wider workforce.”

Not paying a worker a salary that reflects their value is exploitation. Paying executives way more than the rest of the much bigger workforce that serves them is also exploitation. It is exploiting the lack of choice in the labour market, a lack of transparency (because we are all too polite to talk about money) and a lack of regulation.

To those that think such a measure is anti-aspirational, the research suggests otherwise. CIPD research shows that disproportionate levels of CEO pay is a huge issue for employees, with 59% citing it as a reason they are demotivated at work. So in theory companies that reduce executive pay to what is considered a fairer ratio, or increase the salaries of the lowest paid workers to the same extent, get a more productive workforce. And because not everyone, in actual fact, wants to live in Trump Towers surrounded by gold rococo, but would rather just not be struggling to make ends meet at the end of the month.

Many HR departments will be rolling their eyes at the extra work that ratios would involve just on admin, let alone the job the communications departments would have when ratios are finally disclosed and a horrified workforce begins to bite.

One of the things HR heads and the lawyers that help them draw up pay packages can perhaps feel justified in having a good whine about is trying to determine what is considered fair. But actually, they don’t have to do this on their own. They can just ask Pay Compare, an organisation dedicated to determining exactly that.

Fair is a relative concept. Recognising unfairness is often intuitive but it can also be quantified, if we assume that the capabilities of any individual are limited, however skilled and experienced they might be. Bringing executive pay into line with the pay of their workers is not a cap on just deserts, it is a cap on exploitation.

There is a pot of money. Occasionally it is made bigger by things like Quantitative Easing, lower interest rates and higher productivity; occasionally it gets smaller as a result of recession and debt repayments. For the top 1 per cent of earners (and it is the top 1 per cent that keeps getting richer, according to the Institute for Fiscal Studies) to keep continually reaching deeper and deeper down into the pot, leaving only the soggy dregs in the bottom for the rest of the population, is just unsustainable. But that is what is currently happening over time.

Businesses are too moany about red tape, like teenage boys being asked to put on a coat. To those who remonstrate about more form-filling as a result of Theresa May’s promised corporate governance clean-up, well, suck it up, frankly. So what if doing the right thing means a bit more hassle? It’s cold outside.

To those that think this is all sounds a bit communist, do note that it is a Conservative Prime Minister championing the ideas of linking the salary of the highest paid to the salary of the lowest. Because no one, not even those who prioritise economic growth above all other measure of human success, believes that one person’s natural talents, however impressive, can justify them being paid £200 to go for a wee, which is roughly what you get if you divide the £70.4m total package of Sir Martin Sorrell, chief executive of WPP by days, hours and minutes, assuming 90 seconds for a wee break (ever mindful of what his co-workers must think, perhaps he tries to get it down to sub-60).

It remains to be seen whether publishing salary ratios would lead to those ratios shrinking over time. But one thing is for sure: if I was working for someone who earned even 10 times what I was earning, I’d be pretty narked. If they didn’t want to take one for the team and sacrifice a bit of their pot, then I could always leave and find an employer that did value my contribution more “fairly”. There’s no “I” in team, as they say. And there’s no justification to pay executives hundreds of times more than those they depend upon to run their companies effectively.

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