A “them and us” attitude is a major cause of disquiet, and with two thirds of people unhappy with the pay gap in their workplace, according to IPPR research, it is a significant threat to employee engagement. With comment from Nick Pearce, IPPR Director.
People believe the gap between the highest and lowest earners in their workplace is too large. That’s according to polling in a new report published today, by think tank IPPR (Institute for Payroll Policy). The report says that government, business and unions should do more to make pay fairer in UK businesses. An overwhelming 78 percent of people would support government action to reduce the gap between high and low earners, with 82 percent of those saying government should act in both the public and private sectors.
The report shows that the disproportionate influence of the finance sector is behind much of the massive increase in executive pay over the last 30 years. The report explains how excessive bonuses are paid to a small number of top earners, yet ordinary workers often see no extra money when their organisation is doing well. The new polling shows that half of the public think that bonuses should be awarded on an organisational or team basis, with only a quarter supporting bonuses primarily linked to individual performance.
When asked what the salary of a CEO of a large national company should be, the average answer was £350,579, compared to actual average earnings of £1 million. On average, the public think that CEOs deserve 65 percent less than they actually earn. Top pay in the public sector is also seen as too high, with people believing that the CEO of a large council should earn 24 percent less. The public also say that the low paid deserve more. Office cleaners – who on average earn £14,000, should get a 19 percent pay rise, according to a representative sample of the British population. Similarly, the public say that prison officers – who on average earn £26,800 – should have a 20 percent pay rise and painters and decorators – on average earning £22,300 – should have a 12 percent pay rise.
Nick Pearce, IPPR Director, said: “These polling results show that pay in Britain is out of kilter with the public’s sense of just rewards. People think you should get paid what you deserve and don’t see the current inequalities as a fair reflection of differences in effort and talent. People want to see the benefits of success more fairly shared within organisations, instead of a few top earners getting an ever bigger share of the pie. “Executive pay has shot up over the last 30 years but there has been no proportionate rise in the value or performance of companies. Instead, the increasing influence of the finance sector has enabled a small number of top earners to take an increasing share of the wage bill.
“Meanwhile, wages for the bottom half of workers have been stagnating over the last few years. In many organisations, particularly those in the finance sector, pay has become completely disconnected from the effort that people put into their work and the results they achieve. This means that top earners are getting bonuses regardless of performance while ordinary workers see very little reward for their hard work. Government and employers need to find better ways to make sure work is rewarded fairly.”
The report shows how the top ten percent of earners have seen major rises in their pay over the last three decades. Between 1975 and 2008, the top ten per cent increased their share of the UK’s total wage bill from 22 to 32 per cent and the top 1 per cent of earners more than doubled their share of the wage bill from five percent in 1975 to 11 percent in 2008. This disproportionate rise in top pay has been concentrated in Britain’s publicly-listed companies: in 2000, FTSE 100 chief executives earned, on average, 47 times the average worker, but this had increased to 88 times by 2009. FTSE 100 CEOs earned an average £2.3 million in 2009, and FTSE 250 CEOs had average earnings of £1 million in the same year. The boom in executive pay over the last 30 years came after a 30 year period of very moderate growth among top earners. The pay gap – measured by the difference between a full-time man earning in the 90th percentile and a man in the 10th percentile, was 2.5 times in 1968 but by 2010, that ratio had risen to 3.7. The pay gap is slightly larger in London, at 4.5 than the rest of the UK. But the pay gap is particularly wide in London’s private sector for both full-time and part-time workers. The 90/10 ratio for full-time private sector workers in London is 4.9 compared to 3.9 among workers across the UK.
