Pay matters for normal employees, not CEOs

Good on Barclays and Citigroup, but we need to focus on the pay of all employees, not just those at

Stories about shareholders challenging the size of CEO pay deals have been prominent in this week's business pages. Barclays have hurriedly amended the terms of Bob Diamond's bonus in the hope of avoiding the sort of embarrassment that Citigroup suffered when a majority of their investors rejected Vikram Pandit's remuneration package. 

In recent years, investors have been widely criticised for failing to address excessive executive pay, and while their current spate of activity is welcome there is strong evidence that they alone are incapable of systematically addressing the problem. Also, while investors (and companies, commentators and policy-makers) are now having serious conversations about executive pay, they are neglecting other problems around pay in the private sector – problems which have serious impacts on the company performance as well as on the wider economy and society. 

Articles about the pay of company CEOs are now common in, but there are far fewer stories about the pay of the wider workforce. The disproportionate focus on a tiny minority of employees is not confined to the media. Companies' annual reports are obliged to talk about pay at the top, but there is no such requirement with regard to pay at the bottom or middle. (Vince Cable recently rejected the idea of obliging companies to report on the ratio between CEO pay and that of a typical employee). This being the case, it is hardly surprising that investors engage very seldom with companies about wider workforce pay.

Companies, investors, commentators and policymakers frequently talk about the (probably incorrect) assumption that pay at the top must motivate executives by linking big rewards to company performance. There is far less talk about the correlation between narrow pay dispersion and improved company performance, or the detrimental effect of excessively low pay on the productivity, attendance, retention and mental health of low and middle ranking employees. Ignoring the wider workforce may suppress the performance of the wider company, but too often the pay of anyone outside the higher echelons is seen as a cost rather than an investment.

But investors (and policymakers) should also consider how workforce pay affects the wider economy. The CBI recently claimed that allowing minimum wage to fall behind inflation comes as "a relief" to "many hard-pressed firms", but forgets that many firms are hard-pressed because low-paid workers have little money to spend in the local economy. Excessively low pay also externalises huge costs to the taxpayer, either supplementing wages through benefits (about £6bn a year, according to the IFS) or meeting the social costs associated with in-work poverty.

Some investors have realised that companies have employees beyond the boardroom. Traditionally these have been ethical investors, whose actions may have been motivated more by ethics than investment, but some more mainstream investors (such as Hermes & NAPF) and commentators (such as the share centre) are now beginning to talk about the need to consider top pay in relation to workforce pay.

Beyond a few pioneers, shareholder interest in pay "beyond the boardroom" is pitifully limited. Hopefully investors themselves will take more of an interest in the business case for whole-workforce pay policies, but if their engagement with the issue of excessive executive pay is any thing to go on, that will take a very long time. We need both the media and policymakers to take a lead, by ensuring that the conversations they have with business leaders are not disproportionately about those business leaders.

Our businesses, economy and families need to move away from model that often appears to regard top pay is a matter of motivation and everyone else's pay as a matter of cost. If we do not move away from such a model, the economy will remain unnecessarily sluggish and brutal.

Cutting Bob Diamond's salary may bring the 1 per cent down, but does that help the 99 per cent? Photograph: Getty Images

Duncan Exley is the director of the Equality Trust

Photo: Getty Images
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No, IDS, welfare isn't a path to wealth. Quite the opposite, in fact

Far from being a lifestyle choice, welfare is all too often a struggle for survival.

Iain Duncan Smith really is the gift that keeps on giving. You get one bile-filled giftbag of small-minded, hypocritical nastiness and, just when you think it has no more pain to inflict, off comes another ghastly layer of wrapping paper and out oozes some more. He is a game of Pass the Parcel for people who hate humanity.
For reasons beyond current understanding, the Conservative party not only let him have his own department but set him loose on a stage at their conference, despite the fact that there was both a microphone and an audience and that people might hear and report on what he was going to say. It’s almost like they don’t care that the man in charge of the benefits system displays a fundamental - and, dare I say, deliberate - misunderstanding of what that system is for.
IDS took to the stage to tell the disabled people of Britain - or as he likes to think of us, the not “normal” people of Britain -  “We won’t lift you out of poverty by simply transferring taxpayers’ money to you. With our help, you’ll work your way out of poverty.” It really is fascinating that he was allowed to make such an important speech on Opposite Day.
Iain Duncan Smith is a man possessed by the concept of work. That’s why he put in so many hours and Universal Credit was such a roaring success. Work, when available and suitable and accessible, is a wonderful thing, but for those unable to access it, the welfare system is a crucial safety net that keeps them from becoming totally impoverished.
Benefits absolutely should be the route out of poverty. They are the essential buffer between people and penury. Iain Duncan Smith speaks as though there is a weekly rollover on them, building and building until claimants can skip into the kind of mansion he lives in. They are not that. They are a small stipend to keep body and soul together.
Benefits shouldn’t be a route to wealth and DWP cuts have ensured that, but the notion that we should leave people in poverty astounds me. The people who rely on benefits don’t see it as a quick buck, an easy income. We cannot be the kind of society who is content to leave people destitute because they are unable to work, through long-term illness or short-term job-seeking. Without benefits, people are literally starving. People don’t go to food banks because Waitrose are out of asparagus. They go because the government has snipped away at their benefits until they have become too poor to feed themselves.
The utter hypocrisy of telling disabled people to work themselves out of poverty while cutting Access to Work is so audacious as to be almost impressive. IDS suggests that suitable jobs for disabled workers are constantly popping out of the ground like daisies, despite the fact that his own government closed 36 Remploy factories. If he wants people to work their way out of poverty, he has make it very easy to find that work.
His speech was riddled with odious little snippets digging at those who rely on his department. No one is “simply transferring taxpayers’ money” to claimants, as though every Friday he sits down with his card reader to do some online banking, sneaking into people’s accounts and spiriting their cash away to the scrounging masses. Anyone who has come within ten feet of claiming benefits knows it is far from a simple process.
He is incredulous that if a doctor says you are too sick to work, you get signed off work, as though doctors are untrained apes that somehow gained access to a pen. This is only the latest absurd episode in DWP’s ongoing deep mistrust of the medical profession, whose knowledge of their own patients is often ignored in favour of a brief assessment by an outside agency. IDS implies it is yes-no question that GPs ask; you’re either well enough to work or signed off indefinitely to leech from the state. This is simply not true. GPs can recommend their patients for differing approaches for remaining in work, be it a phased return or adapted circumstances and they do tend to have the advantage over the DWP’s agency of having actually met their patient before.
I have read enough stories of the callous ineptitude of sanctions and cuts starving the people we are meant to be protecting. A robust welfare system is the sign of a society that cares for those in need. We need to provide accessible, suitable jobs for those who can work and accessible, suitable benefits for those who can’t. That truly would be a gift that keeps giving.