Last month, the Swiss voted overwhelmingly against a proposal that was billed as a pay cap for the rich. Executive pay would have been limited to 12 times the amount given to the lowest paid in a firm – a proposal rejected by over 65 per cent of voters. Whatever the merits – or otherwise – of the plan, what is interesting is how it was sold to the public, and how it was discussed in the media. The campaigners didn’t do themselves any favours.
The BBC reported: ‘The rules would have given Switzerland the world’s toughest pay rules and some of the lowest executive salaries’. The Wall Street Journal thundered: ‘In the name of combating a few high-profile examples of supposed salary excess, the Swiss were asked to make it impossible to pay many people what they rightly earned’. They were not alone in seeing the proposal as a pay cap when, of course, it was no such thing. Even under the proposal, businesses would have been free to pay their executives whatever they wanted – they would simply have had to raise the salaries of the lowest-paid to do it. The proposal should have been billed as a way to pull the bottom up, not to push the top down.
The commentators who criticised this plan were making some enormous assumptions about the behaviour of those people who would have been subject to the ‘cap’. Almost uniformly, they assumed that the bosses would rather slash their own pay, or move out of Switzerland, rather than raise the pay of those at the bottom. Presumably some would have done that, but I am not so sure that all would have. By billing this as a cap, and not as a floor – all snake and no ladder – the campaigners played into the hands of those who disagreed with the plan.
Maybe 12:1 was too radical, but what level would be appropriate? I sit on the cabinet of a London council and the ratio of my pay to that of the lowest-paid employee (who is paid the London living wage) is 1.63:1. Some will say that is too much; some will say that is too little. Either way, it is a lot less than 12:1. But what is certainly true is that we are on much firmer ground on the left when we seek to reduce inequality by raising the pay of the poorest, rather than capping the pay of the richest.
That is not at all to say that we shouldn’t care about high pay. It is simply to say that we should care more about raising low pay to reduce pay inequality. If we are serious about all people and families having the same chances to set their own paths in life and to follow those paths, then pay ratios of 200:1 and higher should make us feel queasy. That scale of inequality actively hampers life chances, and not just for those at the bottom, if the Spirit Level is to be believed.
The lowest paid in a business should share in the profits of that business, just as the poorest in a country should share in the prosperity of that country. Vast pay differentials, which often get wider as a firm does better, suggest that not everyone is sharing equally in a firm’s success. That is not only bad for social justice – it is bad for business, too. Motivating employees for a cause in which they will not share is more difficult than running a business, or a country, in which we really are all in it together.
Swiss campaigners got their message wrong. They sounded as though they were more envious of the rich than they were concerned for the poor – surely one of the reasons that voters rejected the proposal so overwhelmingly. Mandating pay ratios might have been the wrong answer, but the campaigners should at least have asked the right question. We should not be interested in pay inequality as a route to bring down the rich – we should use it to enhance the life chances of the poorest working people.
That is why the living wage is such a powerful tool. It puts money in the pockets of the poorest workers and puts the concept of a decent, affordable lifestyle centre-stage on the political agenda. That approach is popular, leading to us talking less about pay caps and more about pay floors. Unlike the Swiss proposal, our approach should be based less on pushing high earners down snakes and more about pulling low earners up ladders.
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