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Is it time we had a maximum wage?

Updated Monday, 8th September 2014

With executive pay spiraling, should government introduce a maximum wage? writes Dick Skellington.

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A cartoon illustrating a Lord-like figure and a servant. The servant asks 'Begging your pardon your Lordship, your Royaltyship, your Honour, sir, but... Is it time we had a maximum wage?' and the Lord-like figures responds with 'Definitely Smithers. You'll never be paid more than threepence a year, I'll see to that ,'good man...'. Creative commons image Icon Catherine Pain under Creative-Commons license

The news last month that top executives in the UK now earn 162 times the pay of the average worker came as no surprise. We live in  a nation where the majority of companies struggle with the concept of the living wage, while the million workers on zero hour contracts barely earn the £6.31 hourly minimum wage.

Last month, a report issued by the High Pay Centre (HPC) called upon the Government to take radical action to force shareholders to cap executive pay at a set multiple of the money earned by a company’s lowest paid employee.

HPC did this despite Business Secretary Vince Cable earlier giving shareholders powers to vote down executive pay at annual meetings, if they so wished, a power they have seemed reluctant, so far, to exercise.

But as George Monbiot pointed out in 2012, the Government, especially this Coalition Government, is very reluctant to impose constraints on executive pay. Monbiot is not alone in calling for a cap on executive pay, a maximum wage to mirror the minimum wage policy of New Labour.

It seems shareholders must be relatively happy with news that the top 100 UK company bosses saw their pay rise by fifteen per cent from 2012 to 2013, while average pay in the UK stood at £26,000. Eighty per cent of all new jobs were found in employment sectors paying around £16,000 for a 40 hour week, just above the minimum wage. 

It seems we live in a society where income inequality remains something governments tackle only from the bottom up, rather than the top down.

HPC recommends a maximum pay ratio. It would look something like this: the highest paid employee in an organisation would not be permitted to earn more than an agreed multiple of the amount earned by the lowest paid worker in that organisation.

It is admirable that some organisations have already agreed similar schemes. John Lewis, for example, now operate a 75:1 pay ratio, at the bank TSB the ratio is 65:1, far better than the average of 162:1 currently in practice.

Can our economy continue to witness an elite growing increasingly richer at the expense of their poorest workers? Indeed, come to think of it, with the rather muddy waters of executive income mired in bonuses and lack of transparency, it is likely that top executives will still pay less tax than they should, and that the lowest paid worker will continue to pay the correct tax, though be relatively poorly paid. How's the old song go again? 'It's the rich that get the pleasure, it's the poor who get the blame'.

I wonder if the political parties will include maximum pay ratio proposals in their election manifestos for 2015. I doubt it. But I am sure if they did they may leave themselves out of the equation (after all they are about to get a ten per cent pay rise).

We should ask ourselves if pay ratios of 162:1 (and rising) are healthy for our society? Surely it is now right for all companies to publish the ratio of pay of their top earners. We may be surprised by the shocking disparities, and it may trigger at long last, a radical Government response.

This blog post is part of Society Matters. The blog seeks to inform, stimulate and challenge our understanding of this changing world and of our humbling role within it. Find out more about the blog and the team.
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