information for transformational people

Balance 246#Balanceitup 



In August 2017, the CIPD, the professional body for HR and people development, and the High Pay Centre, the independent think tank, reported that the average FTSE 100 CEO received an annual pay package of £4.5 million in 2016.

In 2016, the pay ratio between FTSE 100 CEOs and the average pay package of their employees was 129:1 – so for every £1 the average employee is paid, their CEO receives £129. In 2015, the ratio was 148:1.

In contrast to the generous pay packages awarded at the higher levels, just over a quarter of the FTSE 100 are accredited by the Living Wage Foundation for paying the voluntary living wage to all their UK-based staff.

The above is the situation re the FSTE 100 and would not reflect the vast majority of businesses in the UK i.e. SMEs and microbusinesses, where surely the ratios are much less.

In the ONS's Annual Survey of Hours and Earnings, between 2016 and 2017, the largest pay increase for full-time employees was for the lowest paid - 20% received an average of 3.6%. The top 5% received 2.6%. Sounds encouraging but think about it - 3.6% of £15,000 per annum salary (minimum wage) is £540 - an extra £10 per week. 2.6% of say £1m salary is £26,000 - £500 per week.

The ONS say the reason for this increased percentage for the low paid is likely to be due to the change in the National Living Wage (from £7.20 to £7.50) - not intentional action by employers to close the gap. 

Although employment is at an historic high along with vacancies, apart from increases in the National Living Wage, we have not seen rises that would reduce inequality - the gap between top earners and lowest paid workers.

One could argue that the Government have helped through introducing the National Living Wage and increases in tax thresholds but real action needs to be taken by employers minded by the common good to help address the pay gap issue.

What could such action be?

Employers need to be sustainable and cannot just pay extra wages but, if they are successful, they do have a pot of money that they allocate to salary increases each year.

Why not for one year bias this towards the lower paid? I call this the year of #Balanceitup.

How would such a scheme work?

Let's take an imaginary company with 50 employees (full-time equivalents). Its salary bill is £1.5m pa. The intended overall rise is 2.5%. The increase will therefore cost the business £37,500. Instead of allocating this in proportion to existing salary ie the well-paid get more actual £s, let's  allocate it per employee equally ie everyone gets the same amount (pro-rata to hours contracted). 

In the example above, everyone would get £750 pa (£37500/50 people).

In our imaginary company, let's look at how this works out in the table below (simplified for illustration):

 

Position No. of 
People
Individual
Salary
2.5%
rise
#Balanceitup
rise
% Total new
salaries for this band (people x salary with rise)
Total increase for this staff band (people x rise)  
Directors 3   £150,000 £3,750 £750 0.5% £452,250 £2,250  
Senior Managers 2 £7,000 £1,850 £750 1% £151,500 £1,500  
Managers 5 £40,000 £1,000 £750 1.9% £203,750 £3,750  
Staff level A 10 £25,000 £625 £750 3% £257,500 £7,500  
Staff level B (min wage) 30 £15,000 £375 £750 5% £472,500 £22,500  
Total 50       2.5% £1,537,500 £37,500  


This pay round costs the employer no extra. Everybody gets something but the lowest paid get more proportionally. This rise is far more meaningful for them due to rise in the costs they face compared to someone who is well paid.

For what reasons should an employer and their senior staff do this? Earlier I mentioned 'the common good'. The classic definition of the Common Good is the set of conditions in which every individual in the community, in this case, the company, can flourish. These conditions need to be built by employers and employees. There are at least two principles from Common Good Thinking which help here:

1. Everyone is included, no one is left behind
Common Good Thinking emphasises that for everyone to be included and no one left behind there needs to be a preferential option for the poor, vulnerable and marginalised. For a healthy society, this principle must be at the centre of our decision-making because it recognises that if the strong are separated from the weak, the strong become impoverished, since being fully human means living together sharing a common life.

2. Solidarity
We are designed to live in community with others and to thrive we should be interconnected by relationships of mutual concern and support. Solidarity is a determination to work for the good of all and of each individual because we are all are responsible for all.

So why not think this through as an employer or bring it to attention of your employer. It could mark your company out as very different and a good place to join. It could help employees come together as a team - helping each other.

And of course, you can always repeat the exercise every few years...

Please tweet about this using the hashtag #balanceitup
 


 

 

Geoff Knott, 13/12/2017

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