The growing gap between rich and poor is causing London to feel like a divided city. This blog by Deborah Hargreaves appears on the Changing London website.
London is at the centre of an increasingly unequal nation. Inequality has been rising in Britain for the past 30 years and we are now one of the most unequal countries in the OECD.
Income extremes in our capital city are stark. There are 2,700 bankers in the UK who took home more than Euros 1 million last year, according to the European Banking Authority. Most of them are based in London and the South East.
At the same time, many Londoners are struggling to make ends meet on the minimum wage.
It would take someone on average earnings of £26,000 a year more than 600 years to earn the £17 million received by the highest-paid chief executive of a British company last year – Angela Ahrendts at Burberry.
These pay disparities are not only mind-boggling in their sheer size, but also have a severely detrimental impact on the fabric of our city.
If you are a multi-millionaire, London is a very different place than if you are earning the minimum wage. For a start, most of the services you use are private.
A driver and top end car will cruise you through the traffic hot spots, while you pay for private schools, health care and domestic services. You are adding to the housing crisis in London by bidding up the price of top properties which drags everything else up in its wake.
It is hard for people like this to imagine how their cleaner has to use two buses to get to work because they cannot afford to live anywhere near their workplace.
At the High Pay Centre, we believe we have to tackle the culture of entitlement at the top of the income scale which has added so dramatically to levels of inequality in the capital.
In 1979, a company director or top banker was on a package that amounted to 14-15 times the average wage for the workforce at our biggest companies. That multiple is now 133 times. Top bosses are on an average of £4.3 million a year.
Executive pay has quadrupled in the past 10 years while workforce wages have stagnated and are back in real terms at the same level as in 2003, according to the Office for National Statistics.
That pay gap has an important economic effect as well as a social one. If all the rewards go to a tiny few at the top, you are draining spending power from the population at large. That holds back the economy.
It also doesn’t make sense to skew all of the rewards to the person at the top of a company when everyone else at that workplace contributes to the success of the business.
Big pay ratios within companies undermine staff morale and affect the efficiency of the business. New research to be published by the High Pay Centre in January will show the pernicious effect of high corporate pay ratios.
One of the reasons given for burgeoning pay at the top, is the more global nature of the corporate sector. London competes on a world scale for top bankers, we are told.
Many of the numbers behind these justifications do not stack up. We found there are precious few international transfers between top bosses. https://highpaycentre.org/pubs/the-myth-of-global-high-pay-talent-market
Companies have also been able to pander to the greed of their top executives and bankers because of the decline in the power of the trade unions.
There has been little challenge to the ever-increasing awards of remuneration committees populated by executives, former directors and bankers.
This is why we have argued for the election of employee representatives to remuneration committees and ultimately to company boards. The addition of ordinary people to company boardrooms would provide a challenge to some of the arguments justifying high pay. It would also remind directors about what is going on in the wider company.
If Bob Diamond had an employee on his board in 2012, he might have heard about the dodgy Libor-fixing at Barclays before the regulator stepped in.
Germany has an effective two-tier structure at the top of its businesses. A supervisory board made up half of employees and half of shareholders, monitors the management and sets pay levels.
This means German employees have a voice in the strategy and leadership of their companies that is stronger than anything in the UK. The German corporate sector has been very successful and weathered the recession in good shape.
Volkswagen’s supervisory board also cut the pay for the chief exec by 20 per cent in 2012 in spite of record profits.
Our idea for a London mayor is to include employees in the decision-making of public bodies and lead by example in encouraging the private sector to follow suit.
John Lewis, one of our most successful retailers has five employees on the board. The only big FTSE 100 company that has employee representation on its board is First group where a train driver from Swindon contributes very effectively to the decision-making.
Big business is very hostile to the idea of including employees on boards, but it works well elsewhere and it could work here. It would make a start at delivering some of the fairness so lacking in today’s workplace.