Fair pay: cracking down at the other end of the income ladder
The TUC’s Fair Pay Fortnight puts a spotlight on the growing wage inequality that affects many thousands of hard working people across the UK. The fortnight will see calls for action to boost the wages of low and middle income families who are victims of the Government’s austerity measures and the hardest hit by the cost of living crisis. But another major policy aim of the Fair Pay Fortnight is to crack down on excessive remuneration.
In 2012, the OECD stated that ‘income inequality’ had increased in Britain, since the mid-1970s, faster than in any other rich nation, mainly because of the rise of the financial services ‘elite’. Just before the banking crisis of 2008, the top 0.1 per cent of earners accounted for a massive five per cent of Britain’s total pre-tax income. The UK’s High Pay Commission has reported that in one bank, Barclays, a senior executive earned 14.5 times more than an average employee in 1979. Today it is 75 times which amounts to a 5,000% pay increase.
Six years on from the start of the financial crisis, banks continue to pay out big bonuses. How can RBS, a bank that is 81% taxpayer owned and where the Government is a major shareholder, be allowed to award bonuses of £576 million, after suffering a profit loss of £8.2 billion, paying out £390 million for Libor interest rate rigging and £95 million for mis-selling payment protection insurance? At the same time 40,000 ordinary bank workers have been laid off. Rewarding failure with big bonuses is neither fair nor justifiable. You would be hard pressed to find another other job where staff get paid to fail.
The Coalition Government has consistently failed to fundamentally reform the bonus culture or the culture of the banking sector. It took the EU in 2010 to bring in rules to curb excessive bonuses, ensuring remuneration reflects genuine long-term performance and that bonuses are no longer guaranteed.
The rules, which I drafted and negotiated, limit cash bonuses to a maximum of 30% (20% for larger bonuses), ensure bonuses are deferred for at least 3 years, make sure bonuses can be clawed back and oblige banks to pay out at least 50% of bonuses in shares and non-cash instruments.
However, old habits die hard. The banks have failed to change their broken bonus culture and accept the costs and damage they have inflicted on the world economy. Their reluctance to change the ethics and the culture of big bonuses prompted the democratically elected European Parliament to set a cap for bonuses at one times a yearly salary, or twice if shareholders agreed, which came into force across the EU this January.
It’s a cap which George Osborne is seeking to have overturned in the European Court of Justice. Osborne and his colleagues have a poor record of standing up for the rights of working people in the Court but are happy to defend and protect the broken bonus culture of their chums in the city. The TUC and its member unions are right to push for action to curb excesses and the increasing inequality in wages.
At a time when workers across the UK are suffering from the devastating effects of austerity, it is unacceptable that those that brought the UK economy to its knees have not felt the pain of austerity.
This post originally appeared on ToUChstone blog and is cross posted here with permission.