Government must act to tackle pay gap

PAYE and cashTwo-thirds of people believe the gap between the highest and lowest earners in their workplace is too large.

A report from the Institute of Public Policy Research (IPPR) found that 78% of people would support government action to reduce the gap between high and low earners, with 82% of those demanding action in both the public and private sectors.

Just rewards?

The report - Getting what we deserve? Attitudes to pay, reward and desert - shows that the disproportionate influence of the finance sector is behind much of the massive increase in executive pay over the past 30 years.

The report explains how excessive bonuses are paid to a small number of top earners, yet ordinary workers often see no extra money when their organisation is doing well.

The new polling shows that half of the public think that bonuses should be awarded on an organisational or team basis, with only a quarter supporting bonuses primarily linked to individual performance.

Pay cuts for the rich

When asked what the salary of a CEO of a large national company should be, the average answer was £350,579, compared to actual average earnings of £1m. On average, the public think that CEOs deserve 65% less than they actually earn.

Top pay in the public sector is also seen as too high, with people believing that the CEO of a large council should earn 24% less.

Pay rises for the poor

The public also say that the low-paid deserve more. Office cleaners - who on average earn £14,000 - should get a 19% pay rise. Prison officers - who on average earn £26,800 - should have a 20% pay rise and painters and decorators - on average earning £22,300 - should have a 12% pay rise.

Nick Pearce, IPPR director, said: "These polling results show that pay in Britain is out of kilter with the public's sense of just rewards. People think you should get paid what you deserve and don't see the current inequalities as a fair reflection of differences in effort and talent.

"People want to see the benefits of success more fairly shared within organisations, instead of a few top earners getting an ever bigger share of the pie.

Top pay has shot up

"Executive pay has shot up over the last 30 years but there has been no proportionate rise in the value or performance of companies. Instead, the increasing influence of the finance sector has enabled a small number of top earners to take an increasing share of the wage bill.

"Meanwhile, wages for the bottom half of workers have been stagnating over the last few years. In many organisations, particularly those in the finance sector, pay has become completely disconnected from the effort that people put into their work and the results they achieve.

"This means that top earners are getting bonuses regardless of performance while ordinary workers see very little reward for their hard work. Government and employers need to find better ways to make sure work is rewarded fairly."

Huge pay rises

The report shows how the top 10% of earners have seen major rises in their pay over the last three decades. Between 1975 and 2008, the top 10% increased their share of the UK's total wage bill from 22% to 32% and the top 1% of earners more than doubled their share of the wage bill from 5% in 1975 to 11% in 2008.

This disproportionate rise in top pay has been concentrated in Britain's publicly-listed companies: in 2000, FTSE 100 chief executives earned, on average, 47 times the average worker, but this had increased to 88 times by 2009.

FTSE 100 CEOs earned an average £2.3m in 2009, and FTSE 250 CEOs had average earnings of £1m in the same year. The boom in executive pay over the past 30 years came after a 30-year period of moderate growth among top earners.

Widening pay gap

The pay gap - measured by the difference between a full-time man earning in the 90th percentile and a man in the 10th percentile - was 2.5 times in 1968 but by 2010, that ratio had risen to 3.7.

The pay gap is slightly larger in London - at 4.5 - than the rest of the UK. But the pay gap is particularly wide in London's private sector for both full-time and part-time workers. The 90/10 ratio for full-time private sector workers in London is 4.9 compared to 3.9 among workers across the UK.
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