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

Getty Images.
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The problems with ending encryption to fight terrorism

Forcing tech firms to create a "backdoor" to access messages would be a gift to cyber-hackers.

The UK has endured its worst terrorist atrocity since 7 July 2005 and the threat level has been raised to "critical" for the first time in a decade. Though election campaigning has been suspended, the debate over potential new powers has already begun.

Today's Sun reports that the Conservatives will seek to force technology companies to hand over encrypted messages to the police and security services. The new Technical Capability Notices were proposed by Amber Rudd following the Westminster terrorist attack and a month-long consultation closed last week. A Tory minister told the Sun: "We will do this as soon as we can after the election, as long as we get back in. The level of threat clearly proves there is no more time to waste now. The social media companies have been laughing in our faces for too long."

Put that way, the plan sounds reasonable (orders would be approved by the home secretary and a senior judge). But there are irrefutable problems. Encryption means tech firms such as WhatsApp and Apple can't simply "hand over" suspect messages - they can't access them at all. The technology is designed precisely so that conversations are genuinely private (unless a suspect's device is obtained or hacked into). Were companies to create an encryption "backdoor", as the government proposes, they would also create new opportunities for criminals and cyberhackers (as in the case of the recent NHS attack).

Ian Levy, the technical director of the National Cyber Security, told the New Statesman's Will Dunn earlier this year: "Nobody in this organisation or our parent organisation will ever ask for a 'back door' in a large-scale encryption system, because it's dumb."

But there is a more profound problem: once created, a technology cannot be uninvented. Should large tech firms end encryption, terrorists will merely turn to other, lesser-known platforms. The only means of barring UK citizens from using the service would be a Chinese-style "great firewall", cutting Britain off from the rest of the internet. In 2015, before entering the cabinet, Brexit Secretary David Davis warned of ending encryption: "Such a move would have had devastating consequences for all financial transactions and online commerce, not to mention the security of all personal data. Its consequences for the City do not bear thinking about."

Labour's manifesto pledged to "provide our security agencies with the resources and the powers they need to protect our country and keep us all safe." But added: "We will also ensure that such powers do not weaken our individual rights or civil liberties". The Liberal Democrats have vowed to "oppose Conservative attempts to undermine encryption."

But with a large Conservative majority inevitable, according to polls, ministers will be confident of winning parliamentary support for the plan. Only a rebellion led by Davis-esque liberals is likely to stop them.

George Eaton is political editor of the New Statesman.

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