A group of over 20 leading academic social scientists, including professors Prem Sikka and Danny Dorling, have written to the UK’s biggest investment firms and pension funds in a letter highlighting the risks associated with increased executive pay awards. It comes after think tank the High Pay Centre found that many bosses are still earning 75 times more than their lowest paid employees; doing nothing to improve inequality in society.
High Pay Centre: high pay does not equal productivity
The letter was co-ordinated by the High Pay Centre. It follows claims by the London Stock Exchange and a number of business leaders that higher top pay awards would improve the competitiveness of the UK economy.
The academics have expressed reservations about these claims, arguing that:
- There is limited evidence, beyond individual anecdotes, of UK companies failing to attract or retain key executives because of low pay levels.
- The link between higher executive pay and better business performance remains questionable.
- Any shortage of capable candidates for executive roles should also prompt scrutiny of companies’ leadership training and development processes.
- Top pay increases for senior staff could have opportunity costs in terms of, for example, pay for low and middle income workers or investment in the business.
- Wider pay gaps between executives and ordinary workers could have a negative impact on employee engagement, productivity and ultimately business performance that should be considered alongside the arguments for higher top pay.
- Higher executive pay at major employers could trigger an increase in income inequality, leading to socio-economic problems that would damage the UK’s long-term prospects of economic success.
The letter does not express blanket opposition to higher executive pay at all companies. It instead recommends that investors treat proposals for top pay increases with appropriate scepticism before choosing whether or not to support them on a case-by-case basis.
Professor Alexander Pepper, emeritus professor of management practice at the London School of Economic and Political Science, said:
While I welcome constructive debate, it’s hard not to conclude that the London stock market’s unfavourable international competitive position is a consequence of political uncertainty, a confused approach to international trade, a shortage of capital, and the absence of a coherent industrial policy, rather than a failure to remunerate top executives at US pay levels.
Wider social policy issues also need to be recognised. Business is not carried on in a social and political vacuum.
Inequality is not good for anyone
Luke Hildyard, Director of the High Pay Centre said:
The debate about pay in the UK needs to recognise that there is considerable evidence and a number of expert voices opposed to very high top pay awards. While it is not a zero sum game, excessive executive pay does have implications for the pay levels of the wider workforce.
There is also a well-documented link between higher levels of inequality and much worse lower levels of happiness, health and wellbeing across society.
The letter comes off the back of High Pay Centre research that showed in 2022:
- The median CEO/median employee pay ratio across the FTSE 350 was 57:1 in 2022, slightly up from 56:1 in 2021.
- 2022 saw a slight decrease in the median CEO/lower quartile (25th percentile, or lowest paid) employee pay ratio for the FTSE 350, at 75:1 compared to 78:1 in 2021.
- In the FTSE 100, the median CEO/median employee ratio was 80:1 and the median CEO/lower quartile employee ratio was 119:1 (83:1 and 111:1 in 2021).
Previous High Pay Centre research found that 76% of people think top earners should not be paid more than 20 times their low and middle earning colleagues, while just 3% thought that it was right for CEOs to make more than low and middle earners.
Signatories
Signatories to the High Pay Centre’s letter are:
- Professor Sandy Pepper, Emeritus Professor of Management Practice, London School of Economic and Political Science
- Professor Ruth Bender, Emeritus Professor of Corporate Financial Strategy, Cranfield University
- Professor Gwyn Bevan, Emeritus Professor of Policy Analysis, Department of Management, London School of Economic and Political Science
- Professor Christine Cooper, Chair in Accounting, University of Edinburgh Business School
- Professor Chris Cowton, Emeritus Professor of Accounting, University of Huddersfield
- Professor Danny Dorling, Halford Mackinder Professor of Geography, Oxford University Centre for the Environment
- Professor Patrick Dunleavy, Emeritus Professor of Political Science and Public Policy, Department of Government, London School of Economics
- Professor Gary Fooks, Professor of Criminology, School of Policy Studies, Bristol University
- Dr Aditi Gupta, Senior Lecturer in Accounting and Financial Management, King’s College London
- Professor Lynn Hodgkinson, Professor in Accounting and Finance, Bangor University
- Professor Jonathan Hopkin, Professor of Comparative Politics, Department of Government, London School of Economic and Political Science
- Stewart Lansley, Visiting Fellow, School of Policy Studies, University of Bristol
- Professor the Baroness Ruth Lister of Burtersett, Emeritus Professor of Social Policy, Loughborough University
- Professor Brian Main, Professor of Business Economics, University of Edinburgh Business School
- Professor Kate Pickett, Professor of Epidemiology, University of York
- Professor Andrew Sayer, Emeritus Professor of Social Theory and Political Economy, Lancaster University
- Professor the Lord Prem Sikka of Kingswood, Emeritus Professor Accounting, University of Essex
- Professor Tracy Shildrick, Professor of Inequalities, School of Geography Politics and Sociology, Newcastle University
- Professor Peter Taylor-Gooby, Research Professor of Sociology, School of Social Policy, Sociology and Social Research, University of Kent
- Dr Ben Tippett, Lecturer in Economics, School of Accounting, Finance and Economics, University of Greenwich
- Professor Richard Wilkinson, Professor Emeritus of Social Epidemiology, University of Nottingham Medical School
- Professor Steven Young, Professor of Accounting, Lancaster University Management School
Featured image via nmarnaya – Envato Elements
