Public Support Capping Pay Ratios To Curb Fat Cats
Here we are again - Fat Cat Friday - the day when FTSE 100 bosses have earned more in the first few days of January than the typical UK full-time worker will earn in the entire year. Since inequality was put back on our radar after the financial crisis we've been told that a handful of super rich individuals have the same wealth as the bottom half of the global population, that the richest 1000 individuals in the UK have seen their wealth more than double while the average worker has seen the biggest squeeze in wages since the Napoleonic era, and that CEOs take home millions of pounds in bonuses even when their company is failing. These numbers are indeed shocking, and have fuelled protests such Occupy, new left political movements and slipped off the tongues of many centrist politicians - and yet here we still are.
I started off working inequality when it was considered a "non-subject", I was told just before the financial crash by the chief economist at the think tank I worked at that "inequality doesn't matter - its only growth that people care about. If you want to be a nice person do something on poverty." He was proved wrong very quickly. As the banks collapsed and people finally started asking the right questions inequality was back in vogue. Thomas Piketty's hefty book 'Capital in the 21st century' became a bestseller, and research from unlikely places like the OECD has uncovered just how detrimental inequality is to both society and the economy - nevertheless policy change has been lacking.
The longer I work on addressing economic inequality and witness exactly how inequality feeds through the veins of our economic, social, educational, legal and political systems I realise it comes down to two things - the same old things warned about in Ancient Greek and early economic texts - power and socially-constructed hierarchies - gender, race, class.
Yes, the government will say that it is forcing companies to be more transparent about their wage ratios - but what is transparency when there is no meaningful accountability? The current approach of naming and shaming directors where more than 20 per cent of shareholders vote against a company's pay proposals have been ineffective. The number of such instances doubled between 2017 and 2018 yet there has been no accompanying decline in executive pay. In recently privatised Royal Mail, for instance, 70 per cent of shareholders rejected the executive remuneration policy but it made no difference to the amount of money collected by the board.
CLASS, the High Pay Centre and others are calling for the Companies Act 2006 to be re-written to strengthen the duty that asks for stakeholders including workers, customers and suppliers to be considered. Such a change will help achieve a vital shift in corporate culture over time - making the inclusion of workers on boards more likely, and moving companies to think beyond the bottom line and short-term shareholder interests to their impact on society. CLASS research found that having a worker on remuneration committees resulted in an 'embarrassment factor' as executives feel less inclined to ask for huge pay packets with employees in the room.
Given the scale and stubbornness of the problem we also need to be much more direct in taking action. CLASS advocates removing excessive pay (over £300k) from being corporate tax deductible. This proposal from Richard Murphy is a tax levied on the employer rather than the employee. It has the potential to raise over £4.6 billion annually and will act as a strong disincentive to companies who continue to pay out high salaries.
Thirdly, if we want more deep-rooted change we need to strengthen trade unions. It is no coincidence that as trade union power has declined, wage inequality has increased. It's not rocket science - bosses aren't going to start realising they are not worth it by themselves, workers need more power so they can't ask legitimate questions about the distribution of pay in a company.
It's not if people don't want these changes - a 2018 survey showed that over half of voters supported increasing taxes for those on higher incomes. Thirty-nine percent of voters strongly favoured a cap of 20:1 on the ratio between an employer's highest and lowest-paid workers while just 8 percent strongly opposed one. But while right-wing politicians and bosses hold the cards, action will not be forthcoming. And while we are continually distracted with immigrant bashing, myths about the need for austerity and Brexit - CEOs will keep getting their pay increases, the global elite will continue to buy up properties, big companies like Google will continue avoiding taxes, and yes the rich will just keep getting richer. Let's hope 2019 is the year more of the population wake up to who's really to blame for our growing inequalities.