Churches are wrong to tie top pay to the shopfloor
Top executives’ pay should be no more than 75-times the average wage of the company’s bottom 10 per cent of earners, according to a campaign by church investment managers. Such top-to-bottom ratios are gaining popularity but pay structures are simply not that simple.
Some organisations are flat and the boss would be on a low multiple of the lowest paid while a vertically-integrated company would warrant top pay many times the bottom rung.
And while large companies would expect to pay top executives more than small firms, the workers on the shopfloor would not expect to earn less at a smaller company.
The latest campaign comes from the investment managers of the £10bn of funds held by the main denominations of UK churches. They threaten to raise the 75-fold test with managements of public companies and not to buy shares in the offending firms. The trade unions have previously argued for a maximum wage that would be a multiple of the lowest-paid workers.
But take two big furniture companies that are identical in every respect except that one makes its tables and chairs while the other buys them from suppliers. They each have a £2m a year boss and they each have designers, salesmen, accountants etc earning £75,000. One has shopfloor workers on £25,000 (well above the minimum wage) but the other buys its furniture from a supplier who employs the same number of workers earning £25,000.
For the firm making its own wares the bottom 10 per cent are the shopfloor workers, so their average is £25,000 and the boss earns 80-times their pay. For the other firm, the bottom 10 per cent are those white-collar managers on £75,000 – so the £2m boss earns just 27-times their average.
The churches would invest in the firm that outsources its goods but not the one manufacturing itself. Ironically the latter company might be deemed more socially acceptable because it creates jobs in Britain and the firm buying-in could be purchasing stock from a supplier paying less than the minimum wage.
The 75-times threshold is actually quite generous – but it is completely meaningless. Whether bosses are overpaid can be decided on many factors, but the pay of the shopfloor is not one of them.
