‘Predistribution’ is tricky to implement – how about a council of representatives of all a company’s main grades deciding on pay?
The conference season has spawned a new buzzword, but how would it work? “Predistribution” may strike a chord with policy wonks, but how is it practicable to reduce the inequality of income before tax and public expenditure exert their (modest) redistributive effect?
The obvious mechanism at the base of the income pyramid is a significant rise in the minimum wage, which has stalled behind the rate of increase of average earnings. There is already momentum to push it to a “living wage”, which several firms in London are already implementing at around £8.50 an hour.
But what about the top end where the ratio between the pay of chief executives and their average worker, which was 10:1 in the 1960s, has now ballooned to nearly 200:1? Various ideas have been kicked around, but none of them seem likely to have much impact.
The fashionable “shareholder spring”, which attracted a lot of razzmatazz earlier this year, rapidly fizzled out as quickly as it first appeared; it changed just half a dozen awards. But even if Vince Cable’s proposal to make shareholder votes mandatory is enacted, it is unlikely to be effective because shareholders are far more interested in the return on their capital than in reducing inequality.
Others have proposed a high pay commission. This could certainly give salience to pay excesses more systematically across the spectrum, but drawing up general rules that would apply fairly and effectively to the highly disparate circumstances of different industrial and financial sectors could prove dauntingly difficult.
Another proposal, suggested earlier by Ed Miliband, has been to put a shop-floor representative on the boardroom remuneration committee. This would certainly break the secrecy of these cosy clubs, but how could one or two worker representatives change the majority almost certainly arraigned against them?
No, what is really needed is to reform the whole compartmentalised system by which pay is currently determined in Britain. Manual workers’ pay is settled largely through collective bargaining, white collar workers’ pay is decided by individual private contracts with the employer, and top pay is drawn up via the mutually back-scratching remuneration committees invited by the chief executive and his boardroom colleagues. The colossal, and still growing, inequality is a direct product of this divided system. There must be a fairer and better way, and there is.
Enterprise councils should be set up in all large companies, composed of representatives of all the main grades within the organisation. They would meet at least once a year and be empowered to open the books, survey the state of the company, review the financial position (debt, depreciation, stock provision, dividends, investment, cashflow etc) and then determine the funding availability for pay increases throughout the organisation. Each representative would then bid what they believed their own group, from the boardroom to the cleaners, deserved, and this would then be subject to cross-examination by all the others on the basis, of course, that the more that was allotted to one group, the less would be available for others.
Such a model would greatly strengthen the sense of teamwork within the organisation and the dependence for its success on the co-operation of all parties. Instead of pay deals being settled behind closed doors, the whole process would be transparent. Instead of pay being seen as the spoils to be maximised in a constant market struggle, it would become an expression of genuine worth, to be explained and argued for publicly. Above all, instead of pay being seen as an instrument of power and status exerted by leaders over all subordinate groups, it would become a joint decision for those groups themselves, a decentralisation of power among those directly affected, though firmly subject to all the necessary economic realities.
Of course it would be fiercely resisted. In fact it would force managers to rely less on pay-fixing structural authority and more on a skills-based appeal. Those with top-level managerial skills would still have to be paid a high premium within an open market system, but the pressure from below to maximise incentives throughout the organisation would mean that any such special pleading would be restrained to the minimum strictly necessary.
Such a system would organically cut indefensible pay excesses steadily over time. It would operate to maintain inequalities, but no more than those that could be rationally justified.
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