Is High Pay really a problem?

The High Pay Commission has released its report. Left Futures argue that “Top pay is about power not merit or value.” To an extent I think they are correct, but not entirely.

Rick successfully skewers many of Left Futures proposed “solutions.” Royal Commissions and national job evaluations schemes amount to only so much bureaucratic deck-chair shuffling.

Rather than mucking around the edges, Rick argues that if we think pay is too unequal we should just tax the wealthy and give the money to the poor. To an extent that is what we already do, and no bureaucratic intervention into how firms currently work will prove more effective in equalising incomes than that.

I think I know why people come unstuck when thinking about high pay is though. Top pay an hour or week is not 300 times the minimum wage. The minimum is £5.93 an hour. The top executive pay is £3.75 million a year.

But the work of each is completely different. Somebody working in a minimum wage job is exclusively preforming perfunctory tasks which add a little value, like flipping burgers, warehousing or serving customers.

A top executive almost exclusively spends their time doing perfunctory tasks which add no value, like meetings, business lunches, and golf based team building. They then occasionally make decisions which have the potential for colossal financial returns for the company and for society in general.

High wages sole purpose should be to make sure that the most qualified people have the incentive to collect the right information and make the best possible informed guess. It should also be highest at the largest firms where those rare decisions have the biggest impact.

High pay is not the problem, the problem is the idea that a single leader is best placed to make these decisions. They are not. These people are usually overconfident buffoons who aggregate the results of several meetings, spreadsheets and divinations from the entrails of animals.

Workers are poorly paid compared to their bosses because bosses are best place to claim credit for the low frequency activities for which they are only proximately responsible. Ultimately much of the reward to correctly executed business strategy should flow to workers, but they are not in a position to demand their due.

A chief executive should be useful as a focus of blame and as a failure piñata. But as Fred Goodwin illustrates, failure to make the correct big value adding decisions doesn’t stop those claiming top pay from picking up a fat cheque for reward for the zero value added tasks they performed before.

These are the problems of high pay. It exists to reward incredibly rare, important, decisions. We’ve invented a fiction where leaders can make the “right” or “wrong” decisions independent of the organisation and workers beneath them. Until this structure is changed money will continue to flow to power.

One thought on “Is High Pay really a problem?

  1. “Rick argues that if we think pay is too unequal we should just tax the wealthy and give the money to the poor”.

    Sorry for this belated comment – I just found your blog. (And a fine blog it is!)

    Unfortunately the suggestion won’t work. As Abraham Lincoln said (about sending reinforcements to General McClellan) it’s “like shovelling flies across a room”. The employer (which, in practical terms, is just the payee and a bunch of his chums) just raises the guy’s salary or whatever still further, using money it takes from the many poor people it overcharges for its goods or services.

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