The cost of the pay gap

Pay for those at the top of our society continues to rise inexorably while average incomes stagnate. The gap between the remuneration of the so-called “super-managers” who run our top businesses and everyone else, is getting ever wider.

A chief executive can now take home more in three days than an average employee earns in a whole year and FTSE 100 bosses are raking in 160 times average pay.

Those on average incomes have seen no real-terms pay increase for 10 years and wages only recently overtook inflation by 0.1%. But pay for those at the top has almost doubled in the same period. Recent research by the High Pay Centre shows a 5% rise in CEO remuneration last year alone.

It is only in recent history that it has been possible to become seriously rich by climbing the executive ladder in big companies. Yet at the same time, those at the bottom of the wage scale in insecure jobs, are finding it harder to cope with rising bills.

Our new video highlights the problems caused by the growing pay gap in the UK. By channelling the lion’s share of rewards to those at the very top, we are draining spending power from the rest of the economy and creating big social divisions.

We have seen some shareholders speaking out against top pay in the recent round of company meetings. Most recently, 25% voted against remuneration at supermarket chain, Morrisons. But very few pay votes this year have seen a majority against.

Given the short-term focus of most investors, we do not believe shareholders can hold companies to account on their own. We have argued for employees to be voted on to remuneration committees and boards to provide a challenge to the high pay culture.

It is encouraging to see TSB, the bank being spun out of Lloyds, take a new direction. It is adopting the John Lewis model of company-wide profit-share with a ratio of no more than 75 times top to average pay.

This may not look very ambitious, but it is a big departure from remuneration schemes in the traditional banks. We have long argued for schemes like this to be introduced more widely – often to scepticism from the business sector.

This sort of pay policy is a recognition that everyone in a firm contributes to the success of that enterprise rather than just the executives.

It is high time businesses recognised that it is in their own interests to reform their remuneration policy and help reduce the pay gap. Companies with smaller pay discrepancies perform better.

Income inequality is the result of choices we make about dividing the spoils of economic growth. We need to be clear about where those choices are leading us: more unequal societies are less successful economically and socially. We need tackle the pay gap for all of our sakes.