Proof that inequality is also bad for your boss

Strikes, work-related illnesses and staff turnover are more common in organisations with bigger gaps between the highest and lowest earners.

When Boris Johnson said that “inequality was a valuable spur to economic activity” his argument was logical but far too simplistic.

According to Johnson’s reasoning, big pay gaps encourage people to work harder because the rewards for earning a promotion are much greater. The effect is to render the UK economy as a whole more productive when replayed in organisations across the country.

This is certainly the basis on which pay at most major UK employers operate, with the average pay for a FTSE 100 CEO standing at 4.3 million, while many banks, supermarkets and outsourcing firms fail to pay a living wage to their ordinary workers.

Even in the public sector, six-figure pay packages for senior managers have become commonplace, as a result of the notion that ‘top talent’ must be ‘rewarded’ and ‘incentivised’.

Unfortunately, such an approach grossly misunderstands how people respond to rewards and incentives or how complex relationships with managers/employers can be, as new research for the High Pay Centre by the Centre for Equality and Diversity at Queen Mary, University London shows.

Our research found that strikes, work-related illnesses and staff turnover are more common in organisations with bigger gaps between the highest and lowest earners. Obviously, this racks all manner of costs on businesses including lost productivity; extra administrative work; and additional staff training and recruitment costs.

The findings imply that these are driven, in part, by the sense of resentment, injustice and status anxiety that results from vast differences in pay. It is not just absolute levels of pay, or pay relative to peers that effects an employee’s behaviour at work, but their pay in comparison to their senior managers.

This stands to reason. Nobody wants to feel that they are forsaking their nice warm bed, surrendering themselves to the mercy of the UK’s transport infrastructure and then giving up the best part of their day to what is often a series of mind-numbing, spirit-crushing tasks of no inherent value to humanity, just for the purpose of enriching somebody on the top floor of the office who barely gives them the time of day.

Most businesses do recognise this. If you read any company’s annual report or attend an AGM, the introduction usually includes a fulsome ‘thank you’ to the staff – ‘our most important resource’, or words to that effect. Without the support of their ‘ordinary’ employees, the management know that they would not have the platform for their ‘talent’ to function.

Unfortunately, too many pay policies are closer to ‘f**k you’ than ‘thank you’. The average pay ratio between a FTSE 100 CEO and their average employee has increased from less than 50:1 to 133:1 over the past 15 years. The research suggests that this trend will only increase conflict and discontent in the workplace while reducing employee well-being.

We need to get out of this Victorian attitude to work and pay and create different, more democratic workplaces where people feel properly valued and rewards reflect the collective contribution to organisational success.

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9 Responses to “Proof that inequality is also bad for your boss”

  1. chrissnowdon

    I’ve read the report, which makes some striking claims such as:

    “Workplaces where top earners get 8 times the pay of junior staff report at least one case a year of work-related illness. Workplaces with pay differentials of 5 or less do not report any.”

    There doesn’t seem to be any attempt to control for the size of the workforce. Simple weight of numbers means that companies with many employees are more likely to have a case of work-related illness (or a case of a cancer, or a lottery winner etc.) than companies with fewer employees. Large companies are also, I strongly suspect, more likely to have have larger wage differentials.

    Size of workforce is an obvious third variable here but unless I missed it, I don’t see this issue addressed in the report. Is the raw data available online?

  2. Sparky

    Luke Hildyard, have you ever worked in a proper job? By ‘proper’ job I mean one in an organisation driven by a commercial imperative, and not a succession of left-wing policy think-tanks. Because all I can find on you is the Institute of Public Policy Research, New Local Government Network think tank, Future of London think-tank, London Green Party, and various pieces in the Guardian. I find myself wondering what you really know about running a business. Do you even have a degree in a numerate discipline, or is it arts-based?

  3. DaveAtherton20

    Chris makes a good point.

    I work in computer recruitment (25 years) and there are wide differences in pay for identical jobs. An IT Director in a Midlands engineering firm in charge of 20 staff is paid about £65k a year while the IT Director of an investment bank £300k maybe more. 500 staff, 80 hour weeks, traders screaming at you all day, on call 24 x 7 x 365 he/she deserves every penny.

    The challenge of the task and responsibility in larger companies necessitates higher pay.

    In my experience companies pay as much as their profits allow and if they did pay more in the long term would be bankrupt. A relative low paid job or no job at all?

    An infrastructure or applications architect at their best in IT is often the difference between success and failure of a project and typically will save a company £1,000,000 give or take a zero.

    The fact that you remunerate that person £20k a year more is obviously worth the investment.

    Some of my more high end clients while sympathetic to serious illness would not tolerate slackers and are soon eased out.

    If companies cannot afford the staff they go offshore or fold.

    With respect Left Foot Forward and I am trying to be polite here but you simply have no idea about how, what, why and how private enterprise dollies up £740 billion to the treasury to be spent on too many civil servants and white elephants.

    If we did not differentials in pay, prestige and incentives we would all be cleaning the toilets on £50k a year, with the treasury sharing out £200 billion at best, why bother trying?

  4. EricBC

    Sub-contracting and outsourcing makes such surveys of single organisations questionable.

  5. blarg1987

    I’d I think what the article is trying to get at is that the directors of FTSE 100 industries are actually caretakers. They did not create the company from nothing. In that scenario one has to question can they really justify widening the gap between the top and bottom pay levels? Especially when if they do screw up they get a golden parachute and walk into another job. Your point does have merit and that is true they should be well rewarded. However the guy at the bottom should also be well rewarded for be willing to be on call, work extra shifts etc, not get a puny pay rise and a thank you.

  6. DaveAtherton20

    I thought it was quite obvious form #Benefitsstreet even those without jobs have a roof over their head, enough to eat, mobile phones, widescreen TVs,and can afford a fag and a pint. Those in work may not be that much better off but at least they have their pride.

    On company directors, failure is treated ruthlessly. You are straight out the door if the share price or profits wobble that bit too much.

    The reason senior people get payoffs is that they are on a typically 3 year contract where they cannot give notice. The company does not want them to be poached by a competitor with company knowledge and know how.

    So if someone does muck up to get rid of them they have to pay the remuneration to the end of the contract.

    These contracts are freely negotiated and entered knowledgeable and consenting adults.

  7. DaveAtherton20

    Let me address the last sentence of your comment by saying that the poorest 5% in the USA are richer collectively than the richest 5% in India.

  8. blarg1987

    You would expect failure to be treated ruthlessly with company directors, however that is not always the case. Off all the recent major corporation failures how many have been treated ruthlesly? Share prices in sevral major firms have fallen, however don’t see anybody out the door.
    Notice your point at the end of the contract, however we do not hear of many or any CEO’s who get the bare minimum in redundecy packages that the vast majority of people under thir employment would recieve for making mistakes. Many of those people also have signed confidentiality clauses and have in depth knowledge of said company or industry so it seems to be one rle for one and another rule for another.

  9. blarg1987

    be interesting to see if that is the case now 2years later, as India now has more billionaires per capital then the UK.

    Also in the last 30% has the poorest 5% in America had a simular increase in wealth levels as the top 1% in real percentage terms?

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