Capping the wages of high earners at £100,000 a year and redistributing this money could save millions of jobs and increase the pay of some of the lowest earners, a report has said, urging HR departments to look at how reward is distributed in their firms.
An analysis of data from the Annual Survey of Hours and Earnings, conducted by the High Pay Centre and think tank Autonomy, has revealed that having a maximum wage of £100,000 would result in the redistribution of the “cash equivalent of more than one million jobs, showing that mass layoffs are not necessary, if the very rich earn a little less”.
In such a scenario, more than 9.5 million workers would receive pay rises, while 462,000 high earners would receive pay cuts, the report said.
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Coronavirus has put a new focus on executive pay, with investors recently opposing plans by Ryanair to hand chief executive Michael O’Leary a £416,000 bonus, for example. More than a third (34 per cent) of shareholders voted against the move.
In August, the CIPD’s high pay report found only 36 FTSE 100 companies had reduced the remuneration of their chief executives during the pandemic, with experts warning of a “disconnect” between performance and remuneration.
Luke Hildyard, director of the High Pay Centre and co-author of the report, told People Management that while a government policy on pay caps was unlikely any time soon, there were still actions HR teams could consider to address pay distribution in their own companies.
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“[HR] should look to involve workers (including outsourced workers) in the pay setting process through formally soliciting their views on how people at different levels of the organisation should be paid,” he said, adding that people teams should also provide clear details of pay ratios and the thresholds for different pay bands.
The report found there was widespread popular support for a wage cap. In a poll of 1,000 Brits, conducted by Survation for the report, more than half (54 per cent) supported the introduction of a maximum wage – almost twice as many as the 29 per cent opposed to such a move. Overall, 69 per cent supported maximum wages of between £100,000 and £300,000.
Will Stronge, director of Autonomy and another co-author of the report, added that wage caps could be “an essential tool for making sure that industries and those that work in them survive this pandemic”.
“Let's be honest – earning anything more than £100,000 a year is by most people's standards extremely excessive, especially during an economic crisis where millions are being made unemployed,” he said.
However, responding to the findings, Charles Cotton, senior performance and reward adviser at the CIPD, said there were legal and technical challenges to redistributing pay from the top to the bottom, which could make caps hard to implement. “These [pay] cuts can’t be imposed but would need to be agreed to voluntarily,” he said.
“That means that if not all senior staff agree to the proposal, those that do would have to agree to even bigger cuts, which may not be satisfactory to them. Or there may be a situation where senior staff only agree to part of the suggested pay cut – or don’t agree to it at all,” said Cotton.
Merrill April, a partner at CM Murray, pointed out that investor bodies have been keen to signal to companies that any executives rewarding themselves generously while making redundancies or pay cuts among the wider workforce would be “regarded as insensitive and potentially acting unfairly”.
But, she added: “However much a company might wish to introduce a maximum wage cap, it could only do so for future hires, unless those over the intended cap agreed to reduce their wages. It would, however, be possible to freeze salaries and in some instances to defer pay increases.”
Asked to respond to the call for a cap on exec wages, a UK government spokesperson said: “Our immediate priority is to support jobs and the economy through this crisis. That’s why we’ve introduced an unprecedented plan to protect, support and create jobs across the UK.”
They added: “We are wholly committed to supporting the lowest-paid families and have taken decisive action, including investing more than £9bn in welfare since the start of the outbreak, raising the living wage, ending the benefit freeze and increasing work incentives.”