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”
Stephen W
Both sides in this argument have a point.
Running a company is different to working in the Public Sector. Running a private company does have greater risk. Private companies must attract voluntary customers by offering a better service than others. Public bodies have legally guaranteed incomes and budgets.
That is why a pay ratio of 20:1 is fair in the public sector but far too restrictive in the private sector.
But that is not to say that the government cannot have a role in promoting more even pay in the private sector. Legislating to set private pay is wrong and invasive. What private shareholders are willing to pay is their business.
But it is reasonable for the government to take private pay ratios into account when handing out public contracts. The government could make pay ratios and levels part of the judging criteria for handing out public contracts. This could be both in terms of high to low pay ratios and in terms of whether companies pay a living wage. A more sensible 50:1 ratio could apply and if the company goes outside that they could be penalised in terms of being judged for public contracts.
50:1 is a lot more than 20:1 but if it is really true that FTSE 100 top pay is more than 100 times higher than average pay, and therefore presumably more like 200 times higher than lowest pay, this would still be a massive shift in culture.
Of course private companies would not change their pay structures over-night or possibly at all but it would give a powerful ‘nudge’ in the direction of more equitible pay within the private sector, since the public sector hands out contracts worth well more than £100 billion a year.
A further mechanism for promoting more equitable pay could be a mechanism such that pay above a 50:1 ratio tied to the minimum wage would have to be legally treated as removed from profits rather than as wages (from revenue pre-calculation of profits). This would mean it would have to be taxed through corporation tax and then income tax. This would act as a deterrent to ridiculous pay awards and like with the previous proposal through a ‘nudge’ rather than heavy-handed legal restraints. It would also have the benefit that any money paid out through this method would be subject to an effective marginal rate of 64% rather than 50%, thus netting more for the treasury.
Spir.Sotiropoulou
RT @leftfootfwd: We cannot address public sector pay without addressing private sector pay http://bit.ly/ghqkDM
Daniel Pitt
We cannot address public sector pay without addressing private sector pay http://bit.ly/fV59RY #ConDemNation