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Strathclyde Business School

High salaries versus value for money

By Dennis Nickson - Posted on 24 July 2013

Professor Dennis Nickson, Head of the Department of Human Resources Management at Strathclyde Business School, considers the recent revival in interest in excessive pay for public and private sector organisations.

Do you think you’re worth what you’re paid? It’s a question that’s been high on the public agenda for several years now – ever since the dawn of the banking crisis. And it would seem the idea of ‘value’ has now become firmly ensconced in our psyche. Recent headlines have seen a backlash against proposals for a 10% increase in MPs pay  while the banking sector attracted further criticism after it emerged that the UK had more than 2,400 bankers paid in excess of €1m from an overall EU total of 3,175.

Key to this issue are questions around what we need to live in society; what is fair as captured in the maxim of ‘a fair day’s pay for a fair day’s work’; and the rights of employees to a particular share of a company’s profit or the nation’s wealth in terms of the way in which wealth is currently shared out.

Since 2008, the Joseph Rowntree Foundation (JRF) has published annual updates on a ‘minimum income standard’, based on what members of the public think people need to achieve a socially acceptable standard of living. In 2013 JRF suggested that a single person in the UK needs to earn at least £16,850 a year before tax to afford a basic but acceptable standard of living.  Meanwhile recent research undertaken for KPMG suggests that around five million workers in the UK are paid less than the required amount for a basic standard of living. Those at the bottom of the labour market will often be paid at what many would consider poverty pay, while those at the top continue to earn significant sums of money.

The High Pay Commission found that in 2011 the average FTSE 100 total executive package was £4.7m and that top executives in the UK are paid 145 times the average wage (projected to be 214 times above by 2020), although it should be noted that this figure varies between countries.  On the back of these figures the High Pay Commission also suggested that excessive top pay is deeply damaging to the UK as a whole, especially within the context of the economic downturn which has seen large numbers of employees facing pay cuts, pay freezes and job losses.

High levels of income inequality and the increasing gap this creates has also had a number of economic and social consequences. Responses from the British Attitudes Survey suggest ordinary working people in Britain feel the imbalance between those at the top and bottom of the pay scale is increasingly damaging for society. For example, 73% of people strongly agreed or agreed with the view that income differences in Britain are too large. Interestingly, nearly 60% felt that the government had a responsibility to reduce the differences in income between people with the highest and lowest incomes.

As pay at the top of the UK’s biggest companies has trebled in the last 10 years, the FTSE 100 index is little changed, even though companies have claimed that excessive pay is linked to company performance. It is also claimed in a recent report that the supposed scarcity of talent and the need for competitive pay is a ‘myth’ used to justify excessive executive pay.

What do you think? Are those at the top of UK organisations paid excessively and is this damaging social cohesion?

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