The Financial Times reported today that Theresa May’s plans to require companies to publish the pay ratio between CEOs and average workers have hit a ‘snag’. Those of us who have been calling for this transparency for years have, unsurprisingly, already considered these potential ‘snags’, and still consider it a policy worth fighting for. Let’s examine some of the molehills that critics are (predictably) turning into mountains.
The first supposed stumbling block is the idea that companies which have mostly well-paid staff and relatively few low-paid staff will look “fairer” than companies with more equitable business practices but more low-paid staff, because there is a smaller gap between the chief executive and the average worker. Think of a big bank versus a retailer, for example.
Perhaps the publication of pay ratios will lead to a tidal wave of support for Goldman Sachs and opprobrium for John Lewis, or perhaps people are perfectly capable of differentiating between sectors and business types. Besides, and importantly, there is nothing to stop businesses explaining the rationale behind their ratios, and how they compare to their direct competitors and the wider sector. Indeed, we should actively encourage them to put remuneration decisions into context. John Lewis can explain its ratios in comparison with Debenhams. Goldman Sachs can compare itself with a similar beacon of good practice.
Another argument is that pay ratio publication will do little to encourage companies to actually reduce these ratios, but as the High Pay Centre has said, why not “give shame a chance”? Of course, it’s not just about shame. The real value in ratios is that they can help to foster a culture where rewards are considered carefully, and set at levels that can be justified. No longer can boards continue to line executive pockets, while valuing ordinary workers, the people who keep the wheels turning, at a mere fraction of CEO ‘superstars’. The CIPD’s Charles Cotton has it right when he says it forces the question, “What are we rewarding, why, and how?”
It’s perfectly valid to contend that some companies might ‘game’ the ratios, or that those which already outsource their lowest-paid roles will seem to achieve smaller pay gaps than companies which directly employ their lowest-paid workers; but it’s far from clear that this should derail the entire project.
One suggestion put forward today instead of pay ratios, and ostensibly to improve upon current reporting of solely executive pay, is to publish the trajectory of CEO and median pay over time. But this obfuscates what could be made so clear: that some people are deemed hundreds or even thousands of times more valuable than others. As we’ve said before, pay ratios are far more than a metric – they show how connected we are to each other. For that reason, the Equality Trust supports not only the publication of top to median pay ratios, but also the ratio between the highest- and lowest-paid, to acknowledge the contributions of employees across the pay scale.
It’s right that Theresa May should acknowledge the molehills, but she shouldn’t allow herself to be tripped up by them.
Lucy Shaddock, Policy and Campaigns Officer