ARECENT report found that the average pay of FTSE 100 chief executive officers in the UK (CEOs) increased from £2.46 million in 2020 to £3.41m in 2021.
This means that the pay of these CEOs is now a whopping 109 times that of the median full-time worker, according to the report from the High Pay Centre/Trades Union Congress (TUC). The year before, the figure was a relatively lowly 79 times. This is only one of many continuing instances of shocking and ever-growing inequality in wealth and income in Britain today.
By contrast, the much-maligned 1970s were the most equal decade in recent times. Unions were strong and collective bargaining covered 80% of workers, so around 75% of the value of gross domestic product (GDP) went to workers.
Now, with much weaker unions and only one-quarter of workers covered by collective bargaining, workers’ share of GDP has fallen to around 50%.
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Despite some encouraging signs from this summer onwards, there is only so much unions can do with only 23% of workers in unions. Therefore, we need to look at other ways of not just increasing wages relative to prices but stemming and reversing widening wage inequality.
There are three options. The first is the particular policy of maximum wages, where ratios are set so that those earning most can only earn something like 10 times those of the lowest-paid.
The second is the solidarity wage policy, where wages in the less profitable sectors are made up from transfers from the more profitable sectors. The third option is the sliding scales of wages which index links wages to prices through inflation rate increases.
All three can be used in combination because the first works within individual organisations while the second works at the sector level and the third operates at the overall level of the economy.
Maximum wages – sometimes also called salary or wage caps – are commonly used in sports such as football, rugby and basketball in Australia, Britain, Canada, France, New Zealand and the US. They are more generally used in Cuba, and were used in revolutionary Russia.
The solidarity wage policy was used in Sweden while the scales of wages option has been used in France, Italy and Luxemburg.
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The irony of salary caps or maximum wages in sport is that the initiative to introduce them came from employers, the clubs, in order control their labour costs in pursuit of protecting their profits. That does not mean the maximum wage is sullied.
The virtue of a maximum wage – rather than a flat salary cap and where ratios are also set – is that rather than creating a floor, it not only creates a ceiling but one which can pull up the floor.
Simply put, if those towards the ceiling want a wage rise then those nearer the floor will not only get one, too, but it will be the same rise.
OF course, some may say more should go to those at the bottom. True but if the ratio is a low one, such as 1:10, this will happen. So, there then would be no need for a minimum wage which currently institutionalises and legitimises low pay, especially when the working poor have also to claim benefits – tantamount to another subsidy to low-paying employers.
The last time the issue of a maximum wage was promoted was by then Labour leader Jeremy Corbyn, in the run-up to the 2019 General Election. Corbyn pledged Labour would introduce a maximum wage for executives at companies with government contracts. The ratio he proposed was such that executives could earn more than 20 times the wage of their lowest-paid worker if they wanted to bid for public sector contracts, which he calculated would set a salary limit at about £350,000.
Under pressure, he backed away from his earlier proposal to establish a nationwide pay cap regardless of nature of the company or where they received their revenue.
The challenge for the maximum wage here would be to stop companies getting around the ratio limit by awarding share options and other benefits such “golden hellos” and “golden handcuffs” as one-off payments.
The danger with solidarity wages is that it could set one group of workers against another if the source of the money for the transfer did not come from company profits or CEO salaries. If that was likely to be the case, the virtues of maximum wages with ratios become far more obvious. And while the sliding scales of wages indexes wages to prices, this does not necessarily address wage and income inequalities even if it prevents cuts in the values of real wages.
The one Achilles’ heel of maximum wages with ratios is that wages are not the only form of income or wealth for the rich; it would not be a total solution to address inequality.
And, of course, all three options would require changes in public policy and legislation. We are now living in a moment of Tory meltdown but unfortunately that does not mean that the prospect of a Labour government brings the introduction of these proposals any nearer.
Gregor Gall is a visiting professor in industrial relations at the University of Leeds
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