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
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If the left leaves it to David Cameron, we'll have Brexit for sure

Only an upbeat, leftwing case can keep Britain in the European Union.

After months flapping and hesitation, and with much of the reporting and detail so dull that it has barely penetrated the consciousness of even those who speak the language of ‘directives’ and treaty provisions, the EU referendum is upon us. With David Cameron signalling concrete outcomes for negotiations, we seem to be set for June, whatever the protests from opposition parties about the date being too close to local and national elections.  

Cameron’s deal, whose most substantive element consists of denying in-work benefits to European citizens, exemplifies the kind of debate that Conservative strategists want to create: a tedious, labyrinthine parochialism, blending the EU’s procedural dullness with an unquestioned mythology of the little Englander. Try actually reading the various letters, let alone the draft decisions, that Cameron extracted from Donald Tusk, and the agreement turns to putty in your head. But in summary, what Cameron is negotiating is designed to keep the EU debate as an in-house affair within the right, to continue and formalise the framing of the debate as between two strains of anti-migrant sentiment, both of them backed by big business.

The deal may be reactionary, but it is also mediocre in its scope and impact. The worries that many of us had in the leftwing pro-In camp, that Cameron’s deal would push back freedom of movement and working and environmental protections so far that we would be unable to mobilise for continued membership of the EU, can now be put to bed. Quite the opposite of allowing Cameron's narrative to demoralise us, the left must now seize an opportunity to put imagination and ideas back at the heart of the referendum debate.

The British political landscape in which that debate will play out is a deceptively volatile environment. Party allegiance is at a nearly all time low. Inequality is growing, and so is the gap between attitudes. The backbone of the UKIP vote – and much of the Out vote – will come from a demographic that, sometimes impoverished by the legacy of Thatcherite economic policy, sees itself as left behind by migration and change. On top of the class war, there is a kind of culture war underway in today’s Britain: on one side those who see LGBT rights, open borders and internationalism as the future; on the other side, those who are scared of the future. About the only thing these groups have in common with one another is their anti-establishment instincts, their total disdain and mistrust of politics as usual.

The only political movement to have broken through the fog of cynicism and disillusionment in British politics has come from the left. Jeremy Corbyn’s rise to the leadership of the Labour has unleashed something new - and while large parts of the press, and some Labour backbenchers, have portrayed this rise as a crusade of the “croissant eating” metropolitan elite, the reality is very different. The rise of the new Labour left has given voice to a renewed socialist and working class politics; its explicitly radical, outsider approach has given it traction across the social divides – among the young looking for a future, and among Labour’s old base. 

A politics of hope – however vague that term might sound – is the only real answer to the populist Euroscepticism that the Out campaign will seek to embody. Radical politics, that proposes an alternative narrative to the scapegoating of migrants, has to find voice in the course of this referendum campaign: put simply, we need to persuade a minimum wage worker that they have more in common with a fellow Polish migrant worker than they do with their employer; we need to persuade someone on a social housing waiting list should blame the privatisation of the housing market, not other homeless families. Fundamentally, the real debate to be had is about who the public blames for social injustice: that is a question which only the left can satisfactorily answer.

The outsider-led volatility of British politics gives the EU referendum a special kind of unpredictability. For voters who have lost faith in the political establishment – and who often have little materially to lose from Brexit – the opportunity to deliver a blow to David Cameron this summer will be tempting. The almost consciously boring, business-dominated Britain Stronger In Europe campaign makes a perfect target for disenfranchised public sentiment, its campaigning style less informed by a metropolitan elite than by the landed gentry. Its main weapons – fear, danger and uncertainty – will work on some parts of the electorate, but will backfire on others, much as the Better Together campaign did in the Scottish referendum.

Last night, Another Europe is Possible held a launch meeting of about a hundred people in central London - with the backing of dozens of MPs, campaigners and academics across the country. It will aim to provide a radical, left wing voice to keep Britain in the EU.

If Britain votes to leave the EU in June, it will give the Right a mandate for a renewed set of attacks on workers’ rights, environmental protections, migrants and freedom of movement. But without an injection of idealism and radicalism,  an In vote will be a mandate for the status quo - at home and in Brussels. In order to seize the real potential of the referendum, the left has to approach the campaign with big ideas and demands. And we have to mobilise.