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From the vaults: a maximum wage proposal from 1994

In 1994, Rotherham MP Denis MacShane proposed a 'maximum wage' limiting executive's pay to 20 times that of their average employee. Read his proposal in the House of Commons - it's striking how many arguments still apply

(Speech to the House of Commons by Denis MacShane MP from 1994, proposing a national 'maximum wage')

I beg to move,

That leave be given to bring in a Bill to fix the emoluments of chairpersons, chief executives and senior managers of private limited companies and public bodies so that their combined annual earnings do not exceed twenty times the average take-home pay of their non-managerial employees save if the said employees agree through a ballot of their non- managerial employees or through their union to permit salaries of their chairpersons, chief executives and senior managers to exceed a 20:1 ratio.

Before explaining why I think the Bill is worthy of serious consideration, let me clear the ground of three misconceptions that have arisen so far in public discussion of it.

First, it is not aimed at entrepreneurs, the geniuses who invent a new product or service and create companies that make them millionaires. I admire Richard Branson and Anita Roddick. Ms Roddick pays herself £138,000 a year, so she would not be affected by my Bill. I welcome the tall poppies in our business field, and wish that there were many more of them.

Secondly, it is not directly aimed at the scandalous pay-offs to company directors, privatised utility pay-offs, Ministers serving on boards of companies or, indeed, the corruption that The Sunday Times exposed in 10 Downing street in the 1980s.

Finally, my Bill does not proposes a compulsory wage set at any given upper limit. I see a glint in your eye, Madam Speaker, as the boss of all Members of Parliament, at the thought of earning 20 times our meagre salary.

My Bill does not propose to set cash limits, as the Chancellor does with his public pay policy; it represents an effort to a start a national debate about how we pay ourselves as a nation for the work we do and the wealth we create.

The pay that our top executives have been awarding themselves has lost all touch with rationality and the market.

I shall take as an example my constituency of Rotherham. The starting salary for a cashier at Barclays bank there is £7,000 a year; the chief executive of Barclays earns 100 times that amount. At the Rank Hovis plant in Rotherham, the base rate for an operative is £164 a week. Greg Hutchings, the CEO of Tomkins, which owns Rank Hovis, earns £1.2 million a year--145 times that amount. The pay of the chief executive of British Steel is 33 times the pay of a Rotherham steel worker.

Some people may say that, if we do not pay those rates, our top managers will disappear to work abroad; but nowhere in Europe do similar pay ratios exist. The head of Thyssen, Germany's biggest steel firm and a much bigger company than British Steel, earns only 16 times the pay of a German steel worker--half the United Kingdom ratio.

Other people will say that those large salaries are justified because many people are employed and big sales are generated. Yet the chief executive of Volkswagen, Europe's biggest car company, which employs 250,000 workers and makes sales of $80 billion a year, is paid 25 per cent. less than the pay last year of the chief executive of British Aerospace, a company with one third the number of employees and one third the magnitude of sales.

If we examine the new growth areas of the dynamic Asian economies, the comparison is even more grotesque. There are eight top managers in Japan with salaries of more than £650,000 a year, compared with the 90 that I have identified in the UK. The earnings ratio between a top executive and an engineering worker in Japan is between eight and 12 to one--compare that with GEC, where Lord Weinstock earns more than 33 times the average male earnings in industry.

That sense of teamwork, that lack of a big gap between top and average pay, is perhaps the reason why Japanese companies have been so much more successful than ours in recent years.

The noble Lord Hanson was quoted recently as saying:

"The labourer is worthy of his hire: but no more than that." I agree with him, because that corporate greed reflects the last great closed shop in the British economic system--the company boardroom. There, men--it nearly always is men--executive and non-executive directors, meet in private, pushing their snouts deeper and ever deeper into the trough: this Government of sleaze with their boardrooms of greed.

In addition to the low-paid in my constituency, two categories of people are being diddled by that deliberate widening of the wealth gap. The first group consists of shareholders. It may be odd for a Labour Member to defend shareholders, but they have their right to a place in the sun. According to a survey carried out by CM Financial Analysis, nearly one third of top UK companies have given their directors pay rises that outstrip the rate of return to shareholders in the past three years.

The second group that is being diddled consists of middle managers, skilled workers and directors of small and medium-sized companies, who are significantly underpaid in comparison to their European counterparts as a price of the overpayment of top bosses. What is needed, and what in part my Bill proposes, is to empower shareholders and all employees, so that they have a genuine say in the firm. If trade union reform was the issue of the 1970s, company boardroom reform is the issue of the 1990s. We need to return companies to their shareholders and their employees if we are to reverse the economic decline of the past 15 years.

With the accession--as many Members will know--of the new member states of the European Union, Britain has sunk to 11th place in the per capita GDP rankings in Europe. We have the widest wealth gap of any European or dynamic Asian economy. My proposal is based not on the politics of envy, but on the comparative economics of efficiency. Company executives have conflated salaries, performance pay and stock options in a way that disconnects them from their workers and shareholders.

An English writer, a Member of the House but not a Labour Member, wrote 130 years ago of our country being divided

"into two nations between whom there is no intercourse and no sympathy; who are as ignorant of each other's habits, thoughts and feelings as if they were dwellers in different zones or inhabitants of different planets."

Once again, we live in a divided nation. The vast majority of members of the Cabinet represent constituencies within commuting distance of London-- anM25 Administration who know nothing of, and have no sympathy for, the north and other regions. The greed of some top executives has transferred them to another planet.

My Bill is a modest attempt to bring those people back to earth, to return companies to their employees and their shareholders. But it has a deeper purpose. It is an attempt to reduce the wealth and pay gap, which has grown alarmingly wide. It is an effort to help make again one nation in which all may play a part, and all may have a share.

Question put and agreed to:

Bill ordered to be brought in by Mr. Denis MacShane, Mr. Ken Purchase, Ms Margaret Hodge, Mr. Barry Sheerman, Mr. Peter Hardy, Mr. Gerry Sutcliffe, Ms Glenda Jackson, Mr. Nick Ainger, Ms Angela Eagle, Ms Diane Abbott, Ms Dawn Primarolo and Mr. Gerald Bermingham.

Maximum Wage

Mr. Denis MacShane accordingly presented a Bill to fix the emoluments of chairpersons, chief executives and senior managers of private limited companies and public bodies so that their combined annual earnings do not exceed twenty times the average take-home pay of their non-managerial employees save if the said employees agree through a ballot of their non- managerial employees or through their union to permit salaries of their chairpersons, chief executives and senior managers to exceed a 20:1 ratio: And the same was read the First time; and ordered to be read a Second time upon Friday 2l October, and to be printed.

Posted on 8 October 2015

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