Why pay ratios are key to tackling UK inequality: five things worth knowing

1. Pay ratios in the UK are shockingly high: pay ratios in the largest FTSE 100 companies are around 1:262 on average. For the public sector it is around1:15 on average and in the third sector it is more like 1:10.

2. The UK public does not like large pay gaps: when asked as part of the 2010 British Social Attitudes survey what a fair pay gap would be in a typical company between top pay and low pay (for unskilled work) they plumped by a majority for a pay ratio of about 1:6. Many surveys since also attest to the ongoing intense dislike the UK public has for inequality and excessive top pay.

3. Private sector excesses ratchet up top pay in other sectors: as the figures above show, the problem with pay inequality is mainly located in the private sector but this encourages management in other sectors to play catch-up. So, for example, there have been some excessive pay packages reported in town halls and in universities as well as other non-private sector organisations. Indeed, in response to criticism of executive pay in some larger charities NCVO has recently published a report which advocates the use of ratios as a way of managing pay dispersion in the sector.

4. High rates of taxation may be easier to reverse than socially embedded fair pay norms: the history of the past 40 years in the UK show that successive governments can fairly easily reverse progressive and redistributive tax rates and create conditions in which inequality can soar. Transparency coupled with public, consumer and investor pressure to bear down on excessive pay gaps could deliver a deeply rooted culture of fairer pay that, once established, will be much harder to shift. Excessive pay inequality will simply become socially aberrant and unacceptable and history shows that’s when things can really change

5. There is a new UK initiative to promote transparency around pay ratios: the Pay Compare movement is seeking to normalise the reporting of pay ratios across the UK. This comes in response to increased public concern about inequality in recent years (and pay inequality in particular) and the belief that business and other employers can play a major part in driving new, fairer pay norms across the economy such that we don’t just have to rely on government interventions. 

Pay Compare already provides the pay ratios of more than 250 employers across the UK and is working hard with various partners to increase this number. As a step-change in this process we will soon be unveiling plans to engage the UK public as “Ratio Reporters” (or Citizen Data Collectors if you prefer…) to help us map UK pay dispersion as a first step towards establishing new and fairer pay norms across the UK. Join us!

Stuart Hill, Founder & Executive Director of Pay Compare.

This is a guest blog and the views of the author are not necessarily those of The Equality Trust.