Ian Shires

Liberal Democrat Councillor for Willenhall North Ward, Liberal Democrat Group Leader, Walsall MBC Learn more

Publishing pay ratios won’t solve the problem

by Ian Shires on 6 September, 2018

With the recent BBC article releasing the data which shows Chief Executive pay rose by 11% last year to around £4 million, the calls began once more to force these large companies to produce pay ratios.

This reporting requirement would look something similar to the Gender Pay Gap reporting requirements, however, the sympathy I have for the Gender Pay Gap requirements would not extend to this.

By introducing the requirement to report the ratio between executive pay and the lowest paid worker in the company, you are not solving any issues, and I’ll explain why.

Firstly, as we have seen with certain people working for the BBC who have given up large pay rises, these pay rises then didn’t go to staff who were paid less. The same thing would happen here as well. If a Chief Executive turned down a pay rise, it wouldn’t suddenly go to employees on minimum wage. Most likely, it would be kept in the bank.

Secondly, it is already possible to find out the data from public companies. If a company is listed on the stock exchange, it has additional reporting requirements already, including a more complete set of financial accounts. Pay of those at the top of the company is already publicly available for these larger organisations, so introducing this additional reporting requirement is just doing work that is already available.

Thirdly, Chief Executives and other members of the Board, could instead use a different style of remuneration, rather than just salary. They may get large pension contributions, they could get stock options or whatever else. This would make the figures look better, but is it going to increase the pay of the lowest paid? No.

There are reforms to make around wages and the labour market which would be far more effective at dealing with this issue than trial by headline.

This BBC article raises an interesting question about whether you should be asked what you currently earn. I personally think that no you shouldn’t be asked because one of the reasons you may be leaving is that you are underpaid in your current position.

What I think we should instead do is require that job adverts submit a pay scale, rather than simply being able to say competitive and then asking the prospective employee what they currently earn to come to the pay you will be offering.

As well as this, we can look at both the Minimum Wage and the Tax Credit system. Tax Credits are being cut in real terms putting a further squeeze on the living standards of individuals and the Minimum Wage has not resulted in the job losses that were predicted when it was introduced – employment is at an all time high despite a large increase in the Minimum Wage recently.

I would love to say that the thinking behind publishing pay ratios of Chief Executives versus the lowest paid is well thought out, but it simply isn’t. It won’t solve the issues that people are trying to solve, will create a trial by media rather than trial by stakeholder process and it is unproductive given that the pay is already in the public domain. We should not support the introduction of this.

* Tom Purvis is a member of the Liberal Democrats who works as an Economist.

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