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Cath Everett

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Pay inequality growing – and bad for business


Pay inequality is rocketing in the UK, with top private sector bosses set to earn a massive 214 times more than average wage earners by 2020, an investigation has found.

According to an interim report published by the High Pay Commission, which is funded by the Joseph Rowntree Charitable Trust, executive renumeration is now “out of control” and spiralling towards relative levels not seen since the Victorian era.
But there was little evidence to suggest that linking top pay with corporate performance led to improvements in anything except executives’ standard of living, the study said. Some indicators even showed that business performance had got worse since such links were introduced.
Moreover, common claims that renumeration committees had to keep increasing top executives’ pay or risk having senior managers poached by rivals in an increasingly internationalised market were groundless and not backed up by the evidence.
The High Pay Commission, which was established by pressure group Compass in November and is chaired by former Financial Times news editor and Guardian business editor Deborah Hargreaves, said that boardroom pay now appeared “immune from financial constraints” and the “arms race” in senior pay was likely to continue apace.
The study found that the top 0.1% of the UK working population currently receives 5% of the country’s total earnings, a level similar to the 1940s. If ongoing trends continue, however, this group will obtain 14% of total earnings by 2030, the same proportion as in 1900.
Meanwhile, chief executives of FTSE 100 companies now earn an average of £3.7 million or 145 times the average wage compared with a multiple of 69 in 1999. On current trends they will earn 214 times more than the average or about £8 million a year by 2020.
One factor in the increase in top pay appears to be a steep decline in workers’ membership of trade unions, the report suggested. While half of the working population was unionised in the 1980s, the figure has now dropped to about a quarter. But there was evidence to suggest that unionised firms paid their chief executives less than non-unionised ones.
Business Secretary Vince Cable also launched a consultation on corporate governance and executive pay last year and the results are due to be published next month.