Fair Pay For All

“Employees keep the business doing what it does. It’s important to pay them accordingly.” – Hendrith Vanlon Smith Jr.

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The Scottish Government’s approach to Fair Work Principles are laudable, but should they go further by not just mandating minimum pay standards for low paid workers, but also maximum pay standards for the CEOs who underpay them?

One of the most positive policies that the Scottish Government has championed in the past decade has, in my opinion, been the Fair Work Framework, launched in 2016. Lacking devolved powers over important policies affecting workers like minimum wage or a lot of legislation around workers’ rights (despite efforts in the aftermath of the 2014 independence referendum to see those powers devolved), the Scottish Government had to act a little creatively to try to encourage better pay and conditions for workers in areas where it couldn’t legislate directly.

One of those areas became the Fair Work Framework. The idea being that the Scottish Government couldn’t mandate minimum operating standards for companies above the UK’s inadequate pay and conditions floor but they could use softer powers of PR to promote companies who did go above and beyond the legal minimum and they could give preferential treatment to such companies when it came to Scottish public procurement and/or things like subsidies and tax breaks (while I wouldn’t count this as a positive example of such things, it is at least notable that the main distinguishing factor between the UK’s Freeports and Scotland’s “Green Freeports” is the inclusion of Fair Work Principles in deciding if companies can benefit from the Freeport tax breaks).

The Fair Work Principles include things like applying the Real Living Wage (which is calculated as the minimum required for a full time worker to live decently and is higher than the UK’s minimum wage) but also includes non-pay conditions like recognising trade unions, giving workers an effective voice in company decisions (for example, Common Weal has advocated for large companies to include worker representation on their Board of Directors, as is common in several European countries) as well as giving workers security and opportunity in their employment.

All good things, but I’ve seen the Fair Work Principles being applied to areas where particularly the pay issue is slightly different. Offshore engineering firms, for example, rarely pay their engineers minimum wage and there is an issue with large companies in general that might be worth addressing – the issue of maximum pay.

““The top 10 per cent of the US population appropriated 91 per cent of income growth between 1989 and 2006, while the top 1 per cent took 59 per cent.” ”

Most of Scotland’s political parties recognise that wealth and income inequality are inherently corrosive to the good functioning of society but we also see the Government both not using its tax powers to directly tackle the problems inherent to extremely high pay (even where it is possible due to CEOs of multinational companies not being based in Scotland) and having limited powers to do so (especially around taxing things like dividends because such taxes are reserved).

But a more creative approach to Fair Work could be applied here too. The High Pay Commission recently found that between salary, dividends, bonuses and other income, the average FTSE100 CEO earns around 120 times the median UK worker salary (£4.19 million compared to £34,963). This means that such a CEO could earn as much as that median worker’s annual salary in just three days – almost before their Hogmanay hangover has worn off. Or in other words, the company could afford to hire the CEO and another 119 workers if they were all paid exactly the same. There are very few jobs that can, if they are honest, completely justify creating more value than over a hundred workers.

This issue of executive pay is not just limited to FTSE100 Megacorporations though. Our work in care reform has found that the Scottish social work sector has suffered as a result of the withdrawal of the public sector from that work and the backfilling by the charity sector – with some charities in care and in other sectors also paying extremely high salaries to their executives while relying on low paid or even voluntary labour from folk at the front line.

So my proposal for an addition to the Fair Work Principles is simple. The Scottish Government probably can’t formally legislate for a “maximum pay” law under devolution and there are evidently limits on how far they are willing and able to push the top rates of income tax to limit income in the extremely wealthy (especially those who run companies in Scotland but who do not personally live in Scotland). So instead, we collectively decide an appropriate level of top executive pay as a multiple of the median salary paid across all workers in the organisation and we make that a mandatory inclusion for the company to be recognised as a Fair Work company.

In contrast to the Scottish Government trying to address executive pay through income or capital gains tax, this would be a relatively simple change to make. I don’t even think it would require legislation – just a stroke of a Ministerial pen – though there absolutely should be a debate in Parliament first. I’m happy to talk to any MSP who wants to bring this to the chamber for discussion. Please let me know if you’re one of them.

I’m happy to discuss whether we think 120 is an appropriate number for how high executive pay should be or whether it should be lowered to ten or even four (4x a Real Living Wage Full Time Equivalent salary would still be close to £105,000 a year). If CEOs think they deserve more than this then they are well within their power to advocate for a pay rise, but only if they increase pay for all of their other workers too. And if they don’t want to do that, then they can’t claim Fair Work adherence and lose their preferential treatment in public procurement and subsidies.

Fair Pay for All shouldn’t just be mitigating low paid workers who have to endure the outdated notion of “trickle down” economics that allows robber barons to take all of the wealth while we scrabble for the crumbs they drop. It must be about fair pay at the top as well, where executives are rewarded fairly for their labour, not the labour of others.