Former headhunter Douglas Board believes that the problem of excessive pay lies with the private, not the public sector.
How often discussions of pay seem to me full of noise and nonsense. No doubt this is a symptom of ageing, like how young police officers look.
For example, we have had an unprecedented global financial and economic crisis. Fierce cuts and currency jitters testify that its effects are far from over. Bankers’ pay rapidly became a flashpoint for discussion. Yet that discussion has been conducted in almost childish terms, as if bankers were rats and our problem was how to position pieces of cheese one, three or five years in front of them so that a mindless rush for profit does not knock civilisation over. But bankers are far from mindless: quite the reverse.
Or take the interim Hutton report on fair pay in the public sector. Noise and nonsense seem to have affected its 105 pages quite badly. Why did the Prime Minister and the Chancellor need Hutton to investigate not whether, but how, to ensure that no public sector manager can earn more than 20 times the lowest paid person in their organisation? Despite the cuts, most Whitehall departments probably still employ someone who can find the lowest number on the full-time payroll and multiply it by 20.
Hutton’s recommendations could affect charities but he does not give them much space in his report. This is unsurprising when pay bands ranging from the minimum wage of a little over £10,000, at the bottom, to £200,000 at the top, with appropriate differentials in between, can fit within a 20:1 ratio.
But what about charities (including universities) with staff in, say, China or Zimbabwe? Applying the ratio only to UK-based staff would make no sense in an international organisation. Moreover, in nearly every charity, the lowest-paid person is paid nothing (volunteers). The report does not help in thinking about this.
But the aspect of Hutton which completely passes my understanding is his treatment of the private sector. Hutton does see a problem for society with runaway pay at the top of organisations. He calls it a ‘collective action problem’ – meaning different parts of society need to get their act together to do something about it, and we haven’t. I agree.
Problem is private sector
What’s more, the problem is in the private sector. Hutton notes that the share of top percentile wages earned by public sector workers has been declining and now accounts for less than 1 per cent of those top wages. In the meantime, from 2000 to 2010, the ratio of median FTSE 100 CEO remuneration to median UK earnings shot up from 47:1 to 89:1. Moreover, public perception is wildly inaccurate: most people think the pay of public sector chiefs should be reduced in order to bring them into line with their private counterparts.
Despite all this, Hutton’s conclusion is more transparency and restraint in the public sector! Even when he suggests including within pay-ratio disclosure organisations (for example charities) which deliver services with taxpayers’ money – which could force greater visibility on (say) BAE Systems and Serco – he is minded to exempt organisations covered by the private sector’s corporate governance requirements.
Because we are human, a lump of pay – or a pay policy – affects us through what it means as well as what it is. So the effects of a X:1 pay ratio depend not just on X but on how and why the ratio was adopted. An organisation might adopt 20:1 (or 10:1) after a principled debate, and cohesion and morale might benefit. But to impose a ratio across broad (but not all) sectors, for rather wobbly reasons, is an example of noise and nonsense.
Headhunter experience
During my 18 years as a headhunter I saw pay affecting the jobs people wanted to do in different ways. The very different standards of living possible in different lines of work do affect people’s choices. This is true even within the private sector. The most money anyone ever made as a result of taking a job which I had approached him about was £20m, through a management buyout: a scale of reward (and risk) not available to the individual through accumulating corporate bonuses.
On the other hand I spent much more of my time encouraging people to take pay cuts – often taking on nonprofit roles because of the distinctive complexity, scale, social good or power which they might offer.
Pay is important, complex and confusing – because as humans that’s also what we are. For example, why are we so ‘intensely relaxed’ about rocketing footballers’ pay (which also comes out of our pockets)? Perhaps Mr Hutton could look at this next. On second thoughts...
Dr Douglas Board advises senior individuals on career change and is chair of the Refugee Council.
