Do you care about the difference between the lowest and highest paid?

Pay: the vast pay ratio gap

Do you care about the difference between the lowest and highest paid?

(This article was published on ScotlandB2B website on 5 September 2017)

Probably not, if you are in the top 5%. Almost certainly, if you are in the lowest 50%.

The UK along with many other countries has seen a huge increase in the pay ratio gap between top executives and the lowest paid, despite minimum wage legislation. The UKs top executives pocket an average of £5.3m each year – a figure that is 386 times that of a worker earning the National Living Wage (£7.50/hour).

According to the Equality Trust, top executives earn 165 times more than nurses; 140 times more than teachers; 132 times more than police officers, and 312 times more than care workers.

Many think there is no problem with this: it is global market for top talent, they deserve the pay if they add to shareholder value, and most of our tax comes from the top earners anyway. Others think the market is skewed and does not actually reward true added value to business, and in any event such pay disparities are unhealthy for society.

But there is no doubt the issue is becoming more political.

During the last election, Labour said it would commit to introducing a statutory requirement of a pay ratio of 20:1 in the public sector and on all companies bidding for public contracts. You may or may not agree with the principle, but we can all imagine the carnage if this was introduced.

Increased transparency

Perhaps surprisingly for a Conservative Government, earlier this week the Government announced reforms to `increase transparency and build trust between CEOs and their stakeholders’. Under the proposals, all listed companies will be required to publish the pay ratio between bosses and workers. In the same vein, workers will be represented on companies’ boards – via a non-executive director.

One view of these measures is that they pay just enough heed to Theresa May’s agenda on the Just-About-Managing (JAMs), without overly disrupting big business. But whether it would have the result of helping to `build trust between CEOs and their stakeholders’ is debatable.

That said, it is a start. As with the gender pay gap, the starting point must surely be transparency on the figures so that people can start to question the reality. The old adage “what gets measured gets done” has some relevance here; witness the recent furore over the BBC pay figures which will surely result in meaningful action.

I suspect however that requiring the top companies to publish their pay ratios will not have the desired result of reducing pay disparities. There are too many complex and vested interests at play, from opaque governance by Remuneration Committees, to large institutional shareholders who do not see this as a priority.

Many see that the best starting point would be to give shareholders a binding vote on executive pay. This seems to have gone off the agenda however.

In the meantime, the Government can say it is `doing something’. Initially, probably nothing will change, but I suspect this is not the end of the story, particularly in the public sector. Let’s see what happens.  This is the sort of area we can advise on so do contact us

© Ben Thornber, Thornber HR Law