Could Pay Ratios become the new Fair Trade?

It is good news that the EU is now looking at using pay ratios (£) to rein in excessive executive pay. This is no doubt partly in response to the sadly predictable actions of certain UK banks as they scramble to devise ways around modest new EU bonus rules. It may also be in response to recent confirmation of what we all probably knew, that CEO’s are just not worth what they currently get paid.

But people are not waiting for governments or supra-national bodies to act on pay ratios. There is an increasing interest in the whole subject that has been gathering steam for a while. In 2011, the One Society team at The Equality Trust published a detailed and groundbreaking report that showed, on average, the lowest paid workers in the FTSE 100 companies were valued at roughly a third of a percent of the chief executives of those companies. This shocking statistic reverberated widely with the Archbishop of York, amongst others, citing it more than once. And a recent report from the High Pay Centre also focused on the need for ratios as a way of addressing problems with excessive top pay and its adverse effects on company performance.

New and innovative campaigns have also taken up the baton such as the ambitious Pay Compare which seeks to bring transparency to UK pay ratios across all sectors of the economy whilst the 10:1 Fair Pay on Campus campaign is targeting the growing gap in pay ratios found in our universities who, sadly, seem increasingly to mimic private sector top pay excesses. Meanwhile, in parallel developments in Canada we have the bold Wagemark initiative and in the US we have commendable activist attempts to bring sanity to college and hospital pay structures – encouraged no doubt by favourable winds from Congress following the adoption of the top-to-median pay reporting provisions in the Dodd-Frank Act.

In the UK, the coalition deserves credit for requiring pay policy statements from local authorities under the Localism Act 2011 that includes the concept of pay multiple reporting. However, very regrettably, it has chosen not to take up further recommendations made under the Hutton Fair Pay review to extend ratio reporting into the private sector, nor even to extend the concept to those private contractors such as Serco or G4S whose executives are generously funded by the taxpayer and who increasingly seem to be in the news these days for all the wrong reasons.

Pay ratios offer this country a particularly promising way forward in tackling inequality. In recent British Social Attitudes surveys there has been evidence of muted support for more tax and spend solutions to address our social ills. However, when asked what a fair pay gap is between top and bottom in a typical company the response has been markedly egalitarian (£). The UK public clearly has an appetite to see inequality tackled, at source, in the workplace. 

Ratios should really hold no fears for those at the top of the pay scale. If they wish to really prove their worth in an increasingly skeptical climate, then they should work to reduce pay ratios and run their concerns in a way that shows the whole workforce matters. To do otherwise is to defend and enshrine inequality and people will increasingly notice this. The hope is that we now have the seeds of a powerful consumer movement, perhaps reminiscent of the Fair Tradeand Fair Tax movements, which will see more and more people voting with their pounds to reward fair employers at the expense of the unfair.

Bill Kerry, Secretary of the Equality Trust