In an article in today's Guardian David Cameron proposes establishing a fair pay review into pay inequality in the public sector and asking it ‘to consider how to introduce a pay multiple so that no public sector worker can earn over 20 times more than the lowest paid person in their organisation’.Putting aside the vagueness of the language – Prime Ministers have to make decisions, not pass them over to a review to consider and I’m left wondering what would happen if the review refused to contemplate the idea? – this is a proposal with some merit.
But why limit it to the public sector? David Cameron argues that a pay multiple would ‘help tackle unfair pay policies’ and ‘improve cohesion and morale’. Shouldn’t unfair pay policies be tackled in the private sector too? Wouldn’t improved cohesion and morale in the private sector help the economy recover more strongly from recession?
Whatever the result of the general election, the next government will expect senior public sector workers to behave more like their counterparts in the private sector. They will be expected to deliver the ‘efficiency savings’ that both the main parties hope will prove to be a painless way of reducing the budget deficit (they won’t, but that’s a different story). They will be charged with lifting productivity growth in the public sector into line with productivity growth in the private sector.
So why not treat senior workers in the public and private sectors the same. Forget the review. Just stop anyone in any organisation earning more than 20 times the pay of the lowest paid person in their organisation. According to David Cameron, ‘Some of our most successful private sector companies operate a pay multiple’. Let’s try it out on all of them.
Tony Dolphin
The problem with this suggestion is that limiting pay distorts markets, and removes the incentive for high performing people to show ambition, work hard, and innovate; capping reward will slow growth rates. Such policies will only work in companies and groups where growth is steady and the products and markets stable.
ReplyDeleteI wouldn't say that a ratio of twenty between the lowest paid worker and the highest paid worker in an organisation is 'limiting pay'. Of course, it's not that everybody should be paid the same. It's important to reward risk, hard work and skills.
ReplyDeleteOn the other hand, huge pay packets don't attract the best people. The global financial crisis should have made that clear to everyone. Huge pay packets actually attracts the most reckless people.
I was so glad to read this article. Many thanks to the author, Tony Dolphin. The same thought had crossed my mind, for the need to establish a scheme, let's say 'Fair Pay', (like Fair Trade except for fairness in domestic organisations) which commercial and public organisations could sign up to, to demonstrate their values to the public. Incidentally, some organisations have already established fair pay rations among staff, like Co-op - so it's only a small step beyond that to say that there's no reason why pay ratios should ever be excessive.