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

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Justin Trudeau points the way forward for European politics

Is the charismatic Canadian Prime Minister modelling the party of the future?

Six months after Canadian election day, Justin Trudeau’s Liberal party continues to bask in the glow of victory. With 44 per cent of support in the polls, the Liberals are the most popular party amongst every single demographic – men and women, young and old, and people of all educational backgrounds. 

While most European mainstream parties only dream of such approval, this is actually a small dip for the Liberals. They were enjoying almost 50 per cent support in the polls up until budget day on 21 March. Even after announcing $29.4 billion in deficit spending, Canadians overall viewed the budget favourably – only 34 per cent said they would vote to defeat it.

Progressives around the world are suddenly intrigued by Canadian politics. Why is Justin Trudeau so successful?

Of course it helps that the new Prime Minister is young, handsome and loves pandas (who doesn’t?) But it’s also true that he was leader of the Liberals for a year and half before the election. He brought with him an initial surge in support for the party. But he also oversaw its steady decline in the lead up to last year’s election – leadership is important, but clearly it isn’t the only factor behind the Liberals’ success today.

Context matters

As disappointing as it is for Europeans seeking to unpack Canadian secrets, the truth is that a large part of the Liberals’ success was also down to the former Prime Minister Stephen Harper’s extreme unpopularity by election time.

Throughout almost ten years in power, Harper shifted Canada markedly to the right. His Conservative government did not just alter policies; it started changing the rules of the democratic game. While centre-right governments in Europe may be implementing policies that progressives dislike, they are nonetheless operating within the constraints of democratic systems (for the most part; Hungary and Poland are exceptions).

Which is why the first weeks of the election campaign were dominated by an ‘Anybody But Harper’ sentiment, benefitting both the Liberals and the left-wing New Democratic Party (NDP). The NDP was even leading the polls for a while, inviting pundits to consider the possibility of a hung parliament.

But eight days before election day, the Liberals began to pull ahead.

The most important reason – and why they continue to be so popular today – is that they were able to own the mantle of ‘change’. They were the only party to promise running a (small) deficit and invest heavily in infrastructure. Notably absent was abstract discourse about tackling inequality. Trudeau’s plan was about fairness for the middle class, promoting social justice and economic growth.

Democratic reform was also a core feature of the Liberal campaign, which the party has maintained in government – Trudeau appointed a new Minister of Democratic Institutions and promised a change in the voting system before the next election.

The change has also been in style, however. Justin Trudeau is rebranding Canada as an open, progressive, plural society. Even though this was Canada’s reputation pre-Harper, it is not as simple as turning back the clock.

In a world increasingly taken by populist rhetoric on immigration – not just by politicians like Donald Trump, Nigel Farage, Marine Le Pen and other right-wingers, but also increasingly by mainstream politicians of right and left – Justin Trudeau has been unashamedly proclaiming the benefits of living in a diverse, plural society. He repeatedly calls himself a feminist, in the hope that one day “it is met with a shrug” rather than a social media explosion. Live-streamed Global Town Halls are one part of a renewed openness with the media. Progressive politicians in Europe would do well to take note.

Questioning the role of political parties today

Another interesting development is that the Liberal party is implicitly questioning the point of parties today. It recently abolished fee-paying, card-carrying party members. While this has been met with some criticism regarding the party’s structure and integrity, with commentators worried that “it’s the equivalent of turning your party into one giant Facebook page: Click ‘Like’ and you’re in the club,” it seems this is the point.

Colin Horgan, one of Trudeau’s former speechwriters, explains that Facebook is “literally a treasure trove for political parties”. All kinds of information becomes available – for free; supporters become easier to contact.

It was something the Liberals were already hinting at two years ago when they introduced a ‘supporters’ category to make the party appear more open. Liberal president Anna Gainey also used the word “movement” to describe what the Liberals hope to be.

And yes, they are trying to win over millennials. Which proved to be a good strategy, as a new study shows that Canadians aged 18-25 were a key reason why the Liberals won a majority. Young voter turnout was up by 12 per cent from the last election in 2011; among this age group, 45 per cent voted for the Liberals.

Some interesting questions for European progressives to consider. Of course, some of the newer political parties in Europe have already been experimenting with looser membership structures and less hierarchical ways of engaging, like Podemos’ ‘circles’ in Spain and the Five Star Movement’s ‘liquid democracy’ in Italy.

The British centre-left may be hesitant after its recent fiasco. Labour opened up its leadership primary to ‘supporters’ and ended up with a polarising leader who is extremely popular amongst members, but unpopular amongst the British public. But it would be wrong to assume that the process was to blame.

The better comparison is perhaps to Emmanuel Macron, France’s young economy minister who recently launched his own movement ‘En Marche !’ Moving beyond the traditional party structure, he is attempting to unite ‘right’ and ‘left’ by inspiring French people with an optimistic vision of the future. Time will tell whether this works to engage people in the longer term, or at least until next year’s presidential election.

In any case, European parties could start by asking themselves: What kind of political parties are they? What is the point of them?

Most importantly: What do they want people to think is the point of them?

Ultimately, the Canadian Liberals’ model of success rests on three main pillars:

  1. They unambiguously promote and defend a progressive, open, plural vision of society.
  2. They have a coherent economic plan focused on social justice and economic growth which, most importantly, they are trusted to deliver.
  3. They understand that society has changed – people are more interconnected than ever, relationships are less hierarchical and networks exist online – and they are adapting a once rigid party structure into a looser, open movement to reflect that.

*And as a bonus, a young, charismatic leader doesn’t hurt either.

Claudia Chwalisz is a Senior Policy Researcher at Policy Network, a Crook Public Service Fellow at the University of Sheffield and author of The Populist Signal: Why Politics and Democracy Need to Change