Shining a light on pay disparity can be the harbinger of change
With his recent £70m pay check, Sir Martin Sorrell has cast himself once again as either pantomime villain or Hero of New Capitalism. Whichever side you take, WPP’s employees and the wider world now know his salary, which colours the extent to which we agree with his L’Oréal worthy proclamation: “I’m worth it”.
Changes for the good in pay inequality or boardroom diversity are harder to bring about in a pre-leak Cayman style climate of secrecy. The more we know, the more change can come. Conversely, rumour and speculation around opaque disclosures of what execs get paid is unhelpful as well as tedious.
Our window on executive pay and, specifically, the metric of comparison could be about to change. Legal & General Investment Management’s annual corporate governance report predicted that pay ratios – the chief executive’s pay versus the average employee – would be a hot topic this year.
There is evidence that more equal societies have lower murder rates and incarcerate less of their population. One study posits that the loss of life from income inequality in the US in a single year was the equivalent of the combined loss of life due to lung cancer, diabetes, motor-vehicle accidents, HIV-related causes, suicide and homicide.
Read more: Focus on executive pay is distracting from the real issues
Ultimately, it is in all our interests for a safer, healthier society that the ratio is published, at the very least disclosure keeps inequality of pay in the national conversation.
However, there is a collective distrust of statistics changing the way things work. “Sexism at board level is hardly going to be irradiated by graphs and pie charts” nay-sayers have it.
As an employment lawyer myself I am not so sure legislation effects change by itself. Certainly laws creates rights which, when contravened, create disputes, litigation and, one hopes, some wins for the wronged individual. Even a fool learns from his own mistakes so an employer which gets its fingers burned in the Courts and the Employment Tribunals over time will become less likely to tolerate that openly discriminative words will be spoken.
Read more: Even City bigwigs think it's time to overhaul exec pay
The introduction of pay ratio information would be good news and it looks likely to arrive. However, it’s fair to say that sourcing the right pay ratio information is not straightforward. For the numbers to be meaningful, salary must be aggregated with deferred compensation which, as we now know, can be subject to clawback. Some sectors have a greater number of lower paid workers, which again would skew the comparison with a bank where the “average” employee actually earns more than many chief executive. The difficulties do not outweigh the potential benefits however.
If, since discrimination laws were enacted, companies had been forced to publish information on diversity might things have changed faster? I say yes. By the same token, visibility on the extent to which the chief executive out-earns the average worker can change things too.