Landing on their feet?
There's huge inequality between CEO wages and the average take home. Is it ever going to change?The UK has a problem with pay. According to the common narrative, people either don’t get paid enough, or they get paid too much.
On one hand, take-home pay has been squeezed at a brutal rate. The GMB union reported a 14% fall in the real value of average earnings over the past five years, which has been underlined by recent Office for National Statistics data.
On the other hand, pay and bonuses offered to the nation’s pantomime portly felines appear to have weathered the recession, and high earners remain able to demand significant reward.
What do you get for your money?
One of the oldest truisms in business is that you need to pay big money to get big talent – pay peanuts instead, you get monkeys. But if you pay more than peanuts, surely you just end up with greedier monkeys?
Luke Hildyard, deputy director of independent think tank the High Pay Centre, says using high pay as the primary reward can be bad for business. “‘Tournament theory’ says you need big gaps between different levels in an organisation to make promotions more lucrative, meaning people work harder and the company becomes more productive,” he says. “While there’s some truth in that, there’s a point where the pay difference between you and your boss stops becoming an incentive and becomes a source of resentment.”
“And, when you run a company where rewards and incentives are greater for taking the top positions, it encourages people to compete with their colleagues rather than pull together.”
Matt Brooks, pay and reward specialist at Better Placed HR, thinks this approach will continue, rightly or wrongly. “I think this will always be the case until money is no longer society’s obsession,” Brooks says. “Human competitive nature will drive pay higher – it’s Darwinian and inevitable.”
However, Hildyard stresses that high pay is often a symptom of deeper organisational problems. “High pay is often the result of bad management. Managers that can’t relate on a human level need these crude, simplistic rewards. It’s like giving a horse a sugar lump for clearing a jump – is that how we want people to be treated at work?”
Lessons to be learned
The recession, and the ensuing ‘austerity’ endured by the nation – or some pockets of it at least – put the spotlight firmly on fair pay. But despite this increased scrutiny has anything actually changed?
No, says Brooks. “There’s been a shift,” he says. “But the actual total reward for the highest earners does not appear to be coming down.”
Hildyard agrees. He says: “While pay has a higher profile, the recession hasn’t resulted in any measures that would curtail high executive pay or reverse the widening pay gaps.”
He adds: “The recession hasn’t really changed any behaviour. It’s made pay and inequality a bigger issue and companies are more sensitive but if you look at the figures, executive pay has continued to increase far more than ordinary workers could expect to receive.”
Mind the gap
Of course, not everybody in an organisation can be paid the same. So, when you offer big pay, that usually means big pay gaps – which themselves can be inherently damaging.
Hildyard says: “Our research, ‘The High Cost of High Pay’ found higher pay ratios lead to higher turnover, more absences, more strikes and industrial action. If you go to work and discover your boss is earning 100 times more than you, as opposed to ten times more than you, it fosters resentment and weakens your willingness to go the extra mile.”
Those of us looking to big business for a shining example of morality might be left waiting for a long time. Nonetheless, Hildyard suggests employers have a wider social responsibility to ensure fairness in their pay structure.
“Companies are run in the interests of their shareholders and to maximise profit. What we really want companies to do is to benefit the economy and society as a whole, rather than just maximising profit for a few executives or wealthy investors. And the benefits to society would be greater if benefits were distributed more evenly.”
Time for regulation?
So far, we’ve had a recession, increased public focus and lots of Whitehall talk about improving the pay landscape, but little seems to have changed. Aside from a people’s revolution, what will it take to turn the tide?
There has been long-running talk of regulation to limit high pay, particularly in certain sectors. As welcome as this might be, will it ever happen?
Brooks says even if regulation is introduced it will be short-lived. “Memories of this recession will fade and we’ll find ourselves climbing back up pay scales again,” he says. “Governments will make a lot of noise about it, but the threat of an international talent drain will be too great for it to make a real impact.”
Hildyard agrees. “We’ve found people emphatically in favour of some kind of regulation,” he says. “However, the public are much more radical than politicians. It would take a very brave government to do it, and you have to bear in mind the immense power corporations and the financial services sector have over government.
“Also, their voice is treated by the media as a proxy for the national economic interest – what’s good for the bankers is seen as what’s good for the economy. So, the people who have a vested interest in maintaining these big pay gaps exert so much influence and have been successful at stopping any meaningful measures to address the issue.”
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