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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