date: 21 December 2006
embargo: 00:01 hrs Thursday 28 December 2006
In his New Year message released today (Thursday 28 December), TUC General Secretary Brendan Barber calls for a national debate about top pay after revealing that for every £100 earned by a top company director in 2000 they now earn £205, while ordinary employees have only seen a £6 increase in every £100 they earned six years ago (after allowing for inflation). Top pay is increasing 17 times faster than average pay. And if City bonuses had been shared among everyone at work in the UK, we could all have enjoyed a Christmas bonus of more than £350.
New Year Message from TUC General Secretary, Brendan Barber
'It's time for a national debate about the pay and rewards given to people at the top of companies.
'No-one should resent proper rewards for hard work or risk taking. There is nothing wrong with people who have big responsibilities or who perform well getting more pay, and the nation needs smart, experienced and competent people running major companies. I recognise that envy is never a very attractive attribute.
'But there is still an important debate to be had about how big and how justified these extra rewards should be. And to ask whether record levels of reward at the top are beginning to have a divisive effect on society and harm the economy.
'For the gap between top pay and that enjoyed by the rest of us is getting bigger each year. Plump felines became fat cats some years ago, now they are dangerously obese.
'Since 2000 the total remuneration for the directors of FTSE top 100 companies has gone up by 105 per cent more than the cost of living. In contrast pay for the rest of us has gone up by just six per cent more than inflation. That means for every £100 a top director earned in 2000 they now earn £205, while ordinary employees now earn just £106 (after allowing for inflation). In other words top pay is increasing 17 times faster than average pay.
'But it is not just director's pay, there are other bonuses and perks too. It is estimated that City bonuses this year will total almost £9 billion. That would be enough to have given everyone at work in Britain a Christmas bonus of more than £350.
'Directors of the UK's top 100 companies have amassed pensions worth nearly £1 billion between them, according to the TUC's PensionsWatch survey. On average they can retire at 60 on a final salary pension worth nearly £3 million. The largest directors' pension in each company is worth nearly £5 million (£4.9 million), over 40 times more than most staff pensions. And this is at a time when many have been happy to cut the pensions of their own staff, and been ready to condemn the Government for not cutting the pension built up by public servants such as nurses and school meals staff.
'But why should this bother the rest of us? Some will say 'good luck to them'. Politicians usually evade the question by saying they are not interested in limiting the earnings of David Beckham.
'Yet these levels of top pay do affect the rest of us. There are two obvious ways they have an impact.
'First, particularly in London, big bonuses and boardroom pay outs feed inflation in the property market. Experts estimate that half the City bonus windfalls end up in the property market, with an inevitable effect on house prices. This will ripple down the whole housing market and erect further obstacles to those trying to get on the housing ladder. It is not just the low-paid, but many vital public service workers who have been priced out of the property market.
'Secondly an overheating housing market can tip the balance in the finely balanced discussions by the Bank of England about interest rates. The result can be more expensive loans for business and more expensive mortgages for house buyers.
'But there is also a moral dimension. Should we not be worried that there is growing group of people who are rich enough to float free from the rest of society? Is this not socially divisive? These are often important people taking decisions that can have major effects on jobs and the economy, and yet what contact do they have with ordinary people?
'And at the same time we have significant numbers of people at work who face poverty pay, insecurity and unrewarding work at the other end of the jobs market. The TUC estimates that around one in five of the workforce can reasonably be described as vulnerable workers, including many agency staff, migrant workers, homeworkers and people scrimping by in the cash in hand economy. This Government has been extremely successful at reducing unemployment, and has made real efforts to tackle child poverty but we should not be complacent about the quality of some of the jobs that have absorbed the workless. Many have missed out on undoubted increased national prosperity. And yet many voices in Britain's boardrooms say that to respond to globalisation we must keep down the minimum wage and increase boardroom pay.
'Many now earn more money than they can possibly need, but the size of their pay packet has become a status symbol. My worry is that this is all leading us by stealth towards an Americanisation of UK society where the gap between rich and poor is no longer worthy of comment.
'So what should be done about the super-rich? It is not a problem that lends itself to easy slogan style solutions in a free society. But the solutions that have been adopted so far have had little impact. There is now more transparency in setting top pay, but it is clear that directors would prefer a few day's fat cat headlines than take a pay cut. The use of remuneration committees is marred by a you-scratch-my-back-and-I'll-scratch-yours culture, plus lots of money for consultants to justify big increases. And all the talk of linking rewards to performance, is just that - talk.
'But the start of any solution must be a national debate about just how big the rewards for top directors should be. How much more than the rest of us should they get? Should boardrooms be allowed to have better pensions than those offered to staff? What is good practice for companies that wish to be seen as good corporate citizens? Are the super rich paying their fair share of taxes?
'And we have an important tool. Major companies are no longer owned by a small circle of wealthy individuals. Instead they are owned by institutional investors who look after the savings and pensions of millions of ordinary people. So in a sense company directors work for us, and we pay their wages. Surely then it's fair for us to take a cold, hard look at what we are getting for our money? Already shareholder power has had some influence on company rewards policies, but there is scope for much more. It's time every saver started to insist that the companies they part-own are not homes for fat cats.'
NOTES TO EDITORS:
- Source for director's pay figures; IDS figures show that since 2000, the median total remuneration for FTSE 100 chief executives increased by 122 per cent. (Total remuneration includes elements such as benefits, bonuses, share option gains and incentive payments.)
- Median earnings all employees have increased by 23 per cent (from £15,800 to £19,496 Q3 2000 to Q3 2006 Annual Survey of Hours and Earnings).
- All items retail price index between Q3 2000 and Q3 2006 comes out as 17%.
- The TUC therefore calculates that directors' remuneration has increased by 105% more than the cost of living since 2000 (122%-17%) and average earnings has increased by 6 per cent (23%-6%)
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Issued: 28 December, 2006