The chasm between top earners and the lowest is too big – we need a rethink now

While some individuals would cry blue murder, a report by the High Pay Centre shows that even a 3 per cent cut in top earners’ pay could make all the difference, James Moore writes

Protesters highlight the gap between ‘fat cat’ executives and normal staff (Getty)

Inequality is one of Britain’s most pressing problems. A good way of reducing it is to get more pay into the hands of those at the bottom. The High Pay Centre has come up with a way of doing that while narrowing the yawning gap between them and their bosses.

Analysing the reports of 107 of Britain’s 350 biggest public companies, it found that they could increase the pay of the bottom quartile of their workers by an average of £2,000 each if they reduced the pay of those at the top by 3 per cent.

The research was based on new disclosures public companies have to make in their annual reports. They are now required to report their CEOs’ pay relative to what they pay people in the top quarter, the median and the lower quarter of their UK employees.

The differences are stark and, while I hate to use the Tory phrase “levelling up”, it’s apt for what’s needed in corporate Britain.

For the FTSE 100, the median average CEO/median employee ratio is 74:1 but the median CEO/lower quartile employee ratio is 109:1.

When it comes to those receiving taxpayer support, via the employee furlough scheme or the Bank of England’s snappily named Covid Corporate Financing Facility (ugh), the median CEO/median worker ratio is 80:1 and the median CEO/lower quartile worker ratio is 109:1.

The figures may, however, disguise the true extent of the problem, because outsourced workers in low paid jobs are not included. Shell’s ratios, for example, appear much lower, and thus look better, than BP’s despite being an ostensibly similar organisation with similarly absurdly high CEO pay awards.

The reason? The centre says that the franchising of Shell service stations serves to remove low paid petrol station employees from the calculation. BP, by contrast, owns its own forecourts.

The poor pay of some key workers has drawn a lot of attention during the pandemic. While CEOs have typically been able to work remotely from their comfortable homes, their workers have found themselves on the front line.

Take service stations, which have been staffed by some of these workers. They often sell food, which made them a godsend during the height of the pandemic but put their staff at risk. Some of them even started delivering, through Deliveroo’s poorly paid riders (who are, you’ve guessed it, not employees but contractors).

Given the risks they those workers took, it’s no wonder that people are wondering whether it’s time to look at whether their managers really deserve to be on such a high multiple of their pay.

Change isn’t going to happen overnight and organisations like the High Pay Centre, which have been looking at how to make it happen, could really do with better data.

The forthcoming report should, however, make for interesting reading, particularly for those fund managers who’ve been making a lot of noise about the need to give capitalism a bit of a rethink

Consider that the “top quartile” is inevitably going to be much wider than the others. It may include workers on, say £50,000, which is a comfortable salary but hardly qualifies as megabucks. People on that level of income would probably notice a 3 per cent cut more than a boss on £500,000 would notice a 10 per cent cut because the latter would still be solidly in the megabucks class on £50,000 or even £100,000 less.

Which brings us back to the centre’s call for companies to “rethink” pay and to work on ways to narrow the gap. A further report containing ideas on how to accomplish this is due later this year. Realistically, it isn’t going to be achieved through an overnight pay cut. People earning between £50,000 and £500,000 or even £5m (like some CEOs) would probably cry blue murder, for a start. And people with money have clout.

The forthcoming report should, however, make for interesting reading, particularly for those fund managers who’ve been making a lot of noise about the need to give capitalism a bit of a rethink in response to what we’ve been experiencing.

They’re the people with the votes to force change, but even the more active among them don’t always use them when they should. Perhaps they just get paid too much.