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How To (And How To Not) Call Time on Excessive Pay.

16 January 2017

If you watched the news last week you can’t have helped but have noticed the furore that the Leader of the Labour Party kicked off when he suggested that there should be some kind of cap on high earnings.

Excessive pay is more than an economic problem. At a time where salaries and job prospects for those on the lower end of the scale are getting more precarious by the day it becomes a moral problem as well. I agree with Corbyn insofar as he says that inequality, especially income inequality, is harming our society and our public services. It’s no secret that levels of pay at the top of business and industry have skyrocketed far beyond anything resembling sanity. The High Pay Centre, an independent think-tank, estimate that FTSE 100 CEOs are now paid 130 times more than the median pay of their staff, compared to 45 times more two decades ago.

Where I disagree with Corbyn is on what should be done about it. I am, and continue to be, against a hard cap on earnings. It’s a crude and blunt instrument, the financial equivalent of performing heart surgery with a sledgehammer. It also runs the risk of incentivising behaviour such as hiding pay through share options and payments-in-kind.

I’ve always made it clear that I have no issue with people reaping the rewards if they work hard and are successful. What has happened in recent years is that CEOs and executives are receiving colossal pay packets for just getting by or, in some cases, even failing completely. The example I highlighted the last time I wrote about this subject was Bob Dudley, the chief executive of BP, who received a 20% pay rise last year despite the company recording the biggest operating loss in its history under his watch. When we also start seeing massive pay ratios between workers and executives the question has to be asked if their performances could ever justify it. You could potentially make an argument that a top notch chief executive is, say, responsible for 20 times more than an average employee and therefore deserves to be paid 20 times more, but can you make the same argument for 50, 100, 150 times more?

So if I think something needs to be done but I’m against a hard cap, then where does that leave me?

Luckily we already have a way to move money around society to benefit us all, a way that has been proven to work for centuries across the world. It’s called the tax system. That’s why I’m interested in an experiment conducted by the city of Portland in America, which is introducing tax increases of 10% and 25% for business whose CEOs are paid more than 100 and 250 times more than the median employee respectively. This “inequality tax” would help pay for basic public services in the city, such as housing and police/firefighter salaries. If Portland can pull off a long-term shift in cultural change towards executive pay while raising money for public services at the same time, then why can’t they do the same thing here in the UK? Its questions like this that I’ll be asking the Prime Minister over the next year.

Inequality is not inevitable, but it will take serious action to turn around a ship that has been allowed to get out of control for far too long. The fightback must start here. A fair society is a stronger society, and I will do everything in my power in Tameside Council and in the Greater Manchester Pension Fund to make it happen.


Tags: America, "Business Rates", Economy, "Executive Pay", Fairness, Pay, Portland, Ratio, UK
Posted by: Executive Leader