How to shame inflationary salaries

There is a tendency for those of us on the radical fringes of conventional politics to remain happily oblivious to the fact that nobody in the mainstream is listening. But suddenly the speed of the conventional seems to be accelerating and so much more seems possible – since we are hurtling towards the end of the 40-year period of economic change that our establishment tends to go through – major shifts in 1979 and 1940 and further back too.

This is a way of pointing out that Andrew Simms and I proposed the changes which the government is now discussing to business regulation only five years ago in a pamphlet published by the New Economics Foundation and funded by Co-ops UK. It was called The Ratio. The new New Economics website has not yet caught up with their own illustrious past, but we have searched around online and you can still find the pamphlet here.

It proposes that the simple figure that companies should publish is the bottom-to-top ratio between the highest and lowest earners employed by the company or on contract to the company, for example as cleaners. This is the ratio which has the simplicity and the power to capture the public imagination. Even the median-to-top ratio can produce some eye-watering ratios (Tesco’s was 1:900 under Terry Leahy). But these are formulations the meaning of which are not immediately apparent in the way that the bottom-to-top ratio is.

We proposed that the legislation does not just require disclosure, but that the ratio should be published on the front of the annual report in a common and comparable format. At a future date, we will launch a debate about whether it should be published on all products and publications of public companies.

In order to make sure this does not provide a further impetus towards outsourcing the lowest paid staff, we proposed that the ratio should include the pay of all contract staff as well – which will provide some encouragement to employ contractors which pay a Living Wage.

“Political parties and policy-makers will need to be convinced that the ratio is the logical next step, and a more effective next step, than the simple disclosure of salaries that we have seen over the past decade or so,” we wrote then – it now seems to be the case. “The argument is that disclosure of salaries encourages leap-frogging; disclosure of the ratio encourages equity.”

The problem is that, by itself, the ratio risks a kind of tokenism. Single metrics don’t create change by themselves. It makes sense, therefore, to include the ratio in a Charter of Responsible Pay which can be endorsed by investors and employers organisations, and will need to be drafted partly by them – because it will be pressure from investors that will force companies to sign up to the precepts of the charter. We need to encourage a situation whereby companies that don’t sign up are asked difficult questions by investors about why they have not.

We proposed a charter that might include a maximum acceptable bottom-to-top pay, aware that there may be reasonable exceptions to this, but which can be explained by the companies and organisations themselves. It could also include:

• Transparent executive pay processes.
• Binding provisions for shareholders to have a ‘say on pay’ for CEOs and directors.
• Non-inflationary pay – companies need to be responsible for the social and inflationary effects of their executive pay.
• Employee representatives on the remuneration committee.
• Bonuses linked to environmental, social and other risk factors
• The possibility of pay clawback for failure to balance bonuses for success.
• No hiring bonuses or golden parachutes. If new CEOs are not committed to the future, they should not be hired.
• Stock options must to be available to all staff at the same price.

What is extraordinary is that so many of these now seem to be under discussion inside the government. The times are a-changing, and not always for the worse.