High Pay Matters

Ruth Lister on the interim report of the High Pay Commission.

May 22, 2011
5 min read

‘A top executive is currently paid 145 times the average wage.  By 2020 the differential will be 214 times’ on current trends.  This is just one of the shameful facts to be found in the independent High Pay Commission’s interim report, More for Less: what has happened to pay at the top and does it matter? (p7).  Its analysis shows how, between 1997 and 2007/8, the income of the top 0.1 per cent raced away from that of the wider population with an increase of 64.2 per cent.  In comparison, the income of a person in the 50th percentile (half way up the income distribution) increased by only 7.2 percent.

Although those at the bottom did better than under the previous Tory administration, largely thanks to Labour’s more redistributive measures, the bonanza at the top explains why inequality was still higher when Labour lost power.  This is one reason why high pay matters: it is a major driver of pre-welfare state levels of inequality.  But unequal pay matters in its own right too.  As the report explains, what someones is paid ‘is loaded with perceptions about fairness, value, worth, status and much more.’ (p16)  Fair pay, the report argues, thus matters to companies, the economy and society.  ‘Excessive rewards are undermining relationships with employees and shareholders; they are encouraging harmful risk taking and creating an economic elite which wields enormous power but appears to have lost touch with how the rest of us live.’ (p8).  This in turn damages social cohesion and, I would argue, common citizenship.

The report is worth reading, in particular, for its dissection of the self-serving arguments used by those at the top to justify their rewards.  While attempts to link pay to performance have certainly contributed to run-away awards, especially for executives, the report cites research which questions whether pay does indeed reflect performance in many cases.  It likewise challenges the idea that high pay acts as a compensation for unduly high risk in such positions.  It pours the cold water of evidence too over claims that high pay is needed to prevent international poaching of executives.  Moreover, executive pay in the UK is significantly higher than in the rest of Europe.  And although it is lower than in the US the gap is narrowing fast.

Attempts to rein in top earnings hitherto have largely been aimed at strengthening corporate governance mechanisms.  Their weakness is exposed by ‘the fact that boards, remuneration committees and shareholders have failed to tackle the huge growth in pay packages’ (p9).  The report concludes not only that ‘current regulation will not be effective in restraining top pay’ but also that it ‘has even been shown to be a contributory factor pushing it up’ (p9).  As the Chair, Deborah Hargreaves, concludes in her Foreword, ‘existing attempts to rein in top pay have not worked’ (p5).

So what is the answer?  The Commission will be making recommendations in its final report.  It flags up that these will address three main areas: transparency through more publically available information about pay; accountability through strengthened corporate governance; and fairness.

Transparency is, of course, important.  However, isn’t there also a danger here?  The report points to how the ‘growing use of comparator groups has contributed to an “arms race” in pay’ (p14).  And in an article in the Independent on Sunday, Hargreaves observes that ‘many executives use the pay round as a way of keeping score against rivals.  It is often not about the aggregate amount on offer, but about how that compares with others’ rewards’.  Might not more public information about pay simply fuel the ‘arms race’ further?  Certainly, in order to avoid such an outcome corporate governance mechanisms would have to be strengthened significantly and those charged with regulating top pay would need to reflect wider public concern about unfair rewards.

On the question of fairness, the Commission ‘will seek to understand further what is fair pay in a modern corporate environment and consider what reforms could engage greater fairness in relation to pay’.  A key message running through the report is that ‘the exponential increase in pay at the top of the labour market is a form of market failure.’ (p17)  It points to how legislation on, for instance, equal pay and the minimum wage has ‘been brought in to correct or manage the market.’ (p35).  I hope the Commission will now consider parallel legislation to address the market failure of high pay.

One mechanism for doing so would be some form of maximum wage.  This would not necessarily be a single figure to mirror the minimum wage.  But it could establish a maximum pay differential such as David Cameron himself suggested in relation to public sector pay.  In suggesting an appropriate differential the Commission might look to those that pertain in more equal societies.  And, it could usefully instigate research and democratic deliberation to ascertain what the general public would regard as a fair differential.  This would serve both to provide a publically acceptable benchmark and to involve the public in the next stage of the Commission’s important work.

______

Ruth Lister is a Labour peer and emeritus professor at Loughborough University.


✹ Try our new pay-as-you-feel subscription — you choose how much to pay.

Red Pepper’s race section: open editorial meeting 24 May
On May 24th, we’ll be holding the third of Red Pepper’s Race Section Open Editorial Meetings.

Our activism will be intersectional, or it will be bullshit…
Reflecting on a year in the environmental and anti-racist movements, Plane Stupid activist, Ali Tamlit, calls for a renewed focus on the dangers of power and privilege and the means to overcome them.

West Yorkshire calls for devolution of politics
When communities feel that power is exercised by a remote elite, anger and alienation will grow. But genuine regional democracy offers a positive alternative, argue the Same Skies Collective

How to resist the exploitation of digital gig workers
For the first time in history, we have a mass migration of labour without an actual migration of workers. Mark Graham and Alex Wood explore the consequences

The Digital Liberties cross-party campaign
Access to the internet should be considered as vital as access to power and water writes Sophia Drakopoulou

#AndABlackWomanAtThat – part III: a discussion of power and privilege
In the final article of a three-part series, Sheri Carr gives a few pointers on how to be a good ally

Event: Take Back Control Croydon
Ken Loach, Dawn Foster & Soweto Kinch to speak in Croydon at the first event of a UK-wide series organised by The World Transformed and local activists

Red Pepper’s race section: open editorial meeting 19 April
On April 19th, we’ll be holding the second of Red Pepper’s Race Section Open Editorial Meetings.

Changing our attitude to Climate Change
Paul Allen of the Centre for Alternative Technology spells out what we need to do to break through the inaction over climate change

Introducing Trump’s Inner Circle
Donald Trump’s key allies are as alarming as the man himself

#AndABlackWomanAtThat – part II: a discussion of power and privilege
In the second article of a three-part series, Sheri Carr reflects on the silencing of black women and the flaws in safe spaces

Joint statement on George Osborne’s appointment to the Evening Standard
'We have come together to denounce this brazen conflict of interest and to champion the growing need for independent, truthful and representative media'

Confronting Brexit
Paul O’Connell and Michael Calderbank consider the conditions that led to the Brexit vote, and how the left in Britain should respond

On the right side of history: an interview with Mijente
Marienna Pope-Weidemann speaks to Reyna Wences, co-founder of Mijente, a radical Latinx and Chincanx organising network

Disrupting the City of London Corporation elections
The City of London Corporation is one of the most secretive and least understood institutions in the world, writes Luke Walter

#AndABlackWomanAtThat: a discussion of power and privilege
In the first article of a three-part series, Sheri Carr reflects on the oppression of her early life and how we must fight it, even in our own movement

Corbyn understands the needs of our communities
Ian Hodson reflects on the Copeland by-election and explains why Corbyn has the full support of The Bakers Food and Allied Workers Union

Red Pepper’s race section: open editorial meeting 15 March
On 15 March, we’ll be holding the first of Red Pepper’s Race Section open editorial meetings.

Social Workers Without Borders
Jenny Nelson speaks to Lauren Wroe about a group combining activism and social work with refugees

Growing up married
Laura Nicholson interviews Dr Eylem Atakav about her new film, Growing Up Married, which tells the stories of Turkey’s child brides

The Migrant Connections Festival: solidarity needs meaningful relationships
On March 4 & 5 Bethnal Green will host a migrant-led festival fostering community and solidarity for people of all backgrounds, writes Sohail Jannesari

Reclaiming Holloway Homes
The government is closing old, inner-city jails. Rebecca Roberts looks at what happens next

Intensification of state violence in the Kurdish provinces of Turkey
Oppression increases in the run up to Turkey’s constitutional referendum, writes Mehmet Ugur from Academics for Peace

Pass the domestic violence bill
Emma Snaith reports on the significance of the new anti-domestic violence bill

Report from the second Citizen’s Assembly of Podemos
Sol Trumbo Vila says the mandate from the Podemos Assembly is to go forwards in unity and with humility

Protect our public lands
Last summer Indigenous people travelled thousands of miles around the USA to tell their stories and build a movement. Julie Maldonado reports

From the frontlines
Red Pepper’s new race editor, Ashish Ghadiali, introduces a new space for black and minority progressive voices

How can we make the left sexy?
Jenny Nelson reports on a session at The World Transformed

In pictures: designing for change
Sana Iqbal, the designer behind the identity of The World Transformed festival and the accompanying cover of Red Pepper, talks about the importance of good design

Angry about the #MuslimBan? Here are 5 things to do
As well as protesting against Trump we have a lot of work to get on with here in the UK. Here's a list started by Platform


1