The data about the earnings of ‘council fat cats’ need to be put in context; we cannot address public sector pay without addressing private sector pay.
Duncan Exley is the campaign director for One Society
Stories about “council fat cats” earning more than the prime minister are becoming something of a tradition. Yesterday’s story, covered by the Daily Mail, Guardian, Independent and Sun (among others), is based on data from Incomes Data Services, showing that 43 per cent of surveyed local authorities paid their chief executives more than David Cameron’s £142,500 salary.
It is good that high public sector salaries are being scrutinised, especially at a time when many of the lowest paid public servants are facing unemployment.
It is also welcome that the government has commissioned Will Hutton to make:
“…recommendations on how to ensure that no public sector manager can earn more than twenty times the lowest paid person in the organisation.” (In a review of Fair Pay in the Public Sector, the policy background to the public debate).
However, the data about the earnings of ‘council fat cats’ need to be put in context: not only does Hutton’s interim report point out that the highest public sector pay ratios are not in local authorities (“the highest ratio was in higher education”), it also demonstrates why we cannot address public sector pay without addressing private sector pay.
The most obvious link between public and private sector pay is the fact that:
“Recruitment from the private sector is currently limited, but where it does occur it has contributed to senior pay inflation.”
Perhaps recruitment is limited because the public sector already cannot afford to attract senior staff from the private sector?
According to data quoted by the Department for Business, Innovation and Skills, FTSE 100 CEO pay in 2009 was 115 times higher than average pay in the same organisations; how much more those CEOs are paid than “the lowest paid person in the organisation” can only be guessed at.
But the real elephants in the room are those companies in receipt of substantial public money. Surely we can expect, if we are keen to ensure that taxpayers’ money is spent in a way that gets good value and promotes fair rewards, that the government will consider:
“…recommendations on how to ensure that no private sector manager whose business is mainly based on public money can earn more than twenty times the lowest paid person in the organisation”?
“Remuneration in firms within the contracted-out public services industry reflects private, rather than public, sector norms.”
But those companies – and those whose low pay business models are effectively subsidised by tax credits – do not even have to report on their pay ratios.
23 Responses to “We cannot address public sector pay without addressing private sector pay”
George McLean
@ WHAT?
Would you object to workers in a private company knowing what the CEO and the lowest-graded member of staff earn, so that there is transparency on the earnings ratio?
Duncan Exley
In response to “WHAT?”:
My piece suggests neither that public sector pay is increased to meet private sector norms, not that private sector pay should be capped at 1:20. It does suggest that private sector pay is relevant to public sector pay.
I also suggest that private companies should not be “private…as in ‘none of your business'”, because I – and the rest of us – have an interest as taxpayers in those private sector companies which comprise large parts of the public sector or which otherwise depend on public money. We also have an interest in companies behaving in a responsible way – a principle recognised by the Companies Act.
It is true that companies have a responsibility to shareholders, which is why I suggest that they should report their pay ratios (top-median-bottom) to shareholders, who would then be able to see whether people are getting proportionate rewards, and whether (for example) a company’s low-pay models are likely to create externalities that impact the wider economy in which those shareholders are also invested. Speaking of shareholders, it would be nice if they were required to report how they vote so that their clients (i.e. us, through our pension funds etc) can hold them accountable.
In response to Mister Jabberwock:
You say that “being CEO of a council …is just (simplistically) a matter of spending money”.
Are you confusing council CEOs with Paris Hilton?
Mike Thomas
Oh I agree.
Let’s take a look at the giant Ponzi scheme of public-sector pensions first though. When the public sector converts them to money-purchase schemes then perhaps you might have a point on the private sector pay.
However, that would also be once they are accountable to the population who pays their salaries through taxation on their salaries.
As for Chief Exec’s, in private firms, they are answerable to shareholders for their performance.
Who are LA & Union Chief Exec’s answerable too?
Gareth Jones
http://tinyurl.com/4ttywqv We cannot address public sector pay without addressing private sector pay
reded
To light a fire without matches you need the right environment.
How can private business thrive if the streets are not cleaned, if criminals are not caught, if workers are not educated and healed, if borders are not defended.
It’s time private business and the pirates that grow from it start to learn what happens when the real workers down tools.