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Slicing The Pie

  • Disruption
  • Big thinking
  • Economics

CEO and exec pay has spiraled above that of staff. But it’s better for both businesses and communities if we all take a fairer share, says Louisa Burman.

Huge philanthropic gestures by billionaires often steal the headlines. But, while the eradication of polio is a noble goal that the majority of us couldn’t contemplate funding, why is it the super-rich that get to dictate the agenda? As the world becomes more connected we’ve seen some amazing feats of crowdfunding, where small amounts are raised from a large number of people. Whilst the potential impact on local communities continues to grow, does it rival these huge gestures from the super-rich?

 

The disproportionate increase in CEO and exec pay over the last few decades has driven the growth of the super-rich, with studies showing that CEO compensation has grown 940% since 1978, while typical worker compensation has risen only 12% during the same time period[1]. To put that into perspective, last year CEOs in the UK’s largest publicly listed companies were rewarded with an average pay package worth £3.6 million – that’s almost 120 times more than that of an average full-time worker in the UK (£30k)[2]. The highest paid was the CEO of Ocado, receiving over £58 – a whopping 2,024 times more than the average member of Ocado’s staff[3].

 

This expansive difference helps to create the super-rich and enables them to make these incredible philanthropic gestures. The normalisation of spiralling exec pay might lead you to believe that any alternatives can’t be taken seriously for ‘big business’, who will argue that their salaries and bonuses need to attract the best of the best. But while you might think automatically of traditional worker’s co-operatives, there’s another way. Setting fair minimum pay rates or maximum pay ratios can also be adopted to address pay disparities, in addition to approaches which work to share profits with employees each year.

 

This isn’t pie in the sky theorising – there are a number of big businesses which prove that taking the time to develop and implement structures which fairly consider the financial rewards of those on the ground pays off, and they avoid the need to pay a CEO over 2,000 times that of the average worker.

 

[1] Economic Policy Institute. Report by Lawrence Mishel and Julia Wolfe. CEO compensation has grown 940% since 1978. Aug 2019. https://files.epi.org/pdf/171191.pdf

[2] CIPD. The truth about executive pay. Aug 2020. https://www.cipd.co.uk/news-views/changing-work-views/truth-exec-pay

[3] CIPD. (2020) FTSE 100 CEO pay in 2019 and during the pandemic. London: Chartered Institute of Personnel and Development. Aug 2020. https://www.cipd.co.uk/Images/ftse-100-executive-pay-report_tcm18-82375.pdf

Studies show that CEO compensation has grown 940% since 1978, while typical worker compensation has risen only 12% during the same time period.

Suma, based in West Yorkshire, is a wholesaler of wholefoods with a turnover of £54million[1]. It’s also one of the largest workers’ co-operatives in Europe, with close to 180 members. It works on the principle that “everyone has equal pay and an equal say,” which happens to make its most recent gender pay gap report impressively minimal, outlining a rate of £15.60 per hour for both men and women[2].

 

Alternately, Arup is a trust-owned engineering and architecture firm with global revenues of £1.7bn[3], which includes employees in its profit sharing scheme. The Arup Group has no individual shareholders or external investors, which enables it to make decisions in line with the values of founder, Sir Ove Arup. His desire was for the firm to remain “an organisation which is human and friendly, despite being large and efficient. Where every member is treated not only as a link in the chain of command, or as a wheel in a bureaucratic machine, but as a human being whose happiness is the concern of all.”

 

It’s widely accepted that tech is where the super-rich are in abundance, but there are even tech companies which are successful without disproportionality weighting pay to the execs. CoTech is a network of 45 creative technology companies throughout the UK, which operate as ethical co-operatives, “fully owned and controlled by the people who do the work”. It proves that there are quality alternatives to the typical private equity-funded tech start-ups and publicly-traded multinationals. With collective revenue of £10.3million[4] and all the benefits that being part of a community enables – collaboration, skill sharing, cross-company referrals – it’s easy to understand the appeal of this more equitable model.

 

In a different approach to parity, the CEO of Seattle-based Gravity Payments, Dan Price, took a $1million pay cut in 2015, reducing his salary to $70k so that all of its 120 employees could earn at least the same. Price wanted to commit to “running a company driven by its values instead of the dollars it earns”. The knock on effect was that, in addition to being able to pay their bills on time and start to pay down longstanding debt, employees chose to invest more in their futures. Pension contributions increased by 130% and, due to being able to afford properties closer to their offices, it’s estimated that over 1,500 hours of commuting was saved each year, which freed up time for friends, family and new hobbies. What’s more, this decision didn’t adversely affect the business at all: profits almost doubled from $3.5 million (2014) to $6.5million in 2015[5]. The amount of money that the credit card company has processed in the five years since has also trebled.

 

While there are several models which enable the fruits of employee labour to be better distributed amongst employees, when it’s culturally accepted that exec pay is so disproportionally high, what are the benefits to a business of distributing profits more equitably?

 

[1] Triangle Wholefoods Collective Limited, Registration Number: 21975R. The Board’s Report and Financial Statement. 53 weeks ended September 2018. https://mutuals.fca.org.uk/Search/Society/26027

[2] Suma. Gender pay Gap Information 5th April 2019. https://www.suma.coop/about/gender-pay-gap/

[3] Arup. Leadership. https://www.arup.com/our-firm/arup-leadership

[4] CoTech.https://www.coops.tech/

[5] Gravity Payments. The $70k Decision, What actually happened at Gravity Payments? https://gravitypayments.com/wp-content/uploads/2020/03/Gravity-Payments-70K-Biz-Results-Infographic.png

In the US alone more than $10bn a year funds the influence of government policy – where there’s money, there’s power.

The simple answer is productivity. The financial wellbeing of employees has a positive correlation with their morale and productivity, therefore the better you pay your employees the better the outputs you get (and, quite possibly, even better profits). Reductions in productivity can be seen in both absenteeism and presenteeism figures, whether employees take time off due to the stresses of not having financial stability, or employees show up to work but are unable to focus, creatively problem solve or come up with new ideas. Combined, these are estimated to cost UK businesses £1.56 billion annually[1], which can’t be good for the bottom line.

 

When we look at this from a community perspective, there are clear benefits to local economies. When those putting in the hours gain the rewards – instead of sales revenue being stripped out of the communities where they’re earned, and accumulating in the stock portfolios of those sat in a corner office – you grant employees the ability to invest in their local communities.

 

And it really makes a difference. Not only by picking up their veg at the farmers’ market, eating in their local indie restaurants and dropping their children at an after-school club, but by supporting the causes that are important to them. That might be with their cold hard cash, or with the time that money can buy them via childcare, a reduced commute or not having to have a second job.

 

Of course, in theory a super-rich philanthropist could swoop in with their cheque book. A few mill’ to provide the things that might be valued by their employees’ communities –  better-equipped libraries or the maintenance of lush green spaces, perhaps – but, in reality, the majority of UK millionaire donations fund elite universities. Around 35% of them went to two universities last year: Oxford and Cambridge. The philanthropic donations of the rich go to the next generation of the rich.[2] And it’s eye-opening to consider that in the US alone more than $10bn a year funds the influence of government policy[3] – where there’s money, there’s power.

 

However, when communities come together to crowdfund, there’s a level of passion and shared commitment that one person giving away a small fraction of their wealth can’t emulate. The desire to make the place you live more vibrant and welcoming for everyone who lives there can’t be rivalled by a placard with one rich person’s name on it.

 

Studies show that feeling part of a community correlates more strongly with wellbeing than social or economic characteristics, such as long-term illness or being a single parent[4]. Suggesting that if businesses were to grant their employees the ability to better engage with their communities, there would be a knock-on effect on their overall sense of wellbeing, in addition to their financial wellbeing.

 

There’s clearly still work to be done in convincing the execs and shareholders that, when profits are more equitably shared, it’s good for business AND valuable to society. We have to be more active in shifting our mindset to the common goal of growing the pie for everyone – rather than the individuals with power grabbing larger and larger slices. And that’s true whether you consider that pie to be the business itself, benefiting from a healthier and more engaged workforce, or the economy as a whole, benefiting from communities becoming more sustainable and the people within them more able to support the things which truly add value to their lives.

 

Photographs by Annie Spratt, Marvin Meyer and Studio Republic.

 

[1] Cebr. Financial wellbing and productivity. Oct 2018. https://www.aegon.co.uk/content/dam/ukpaw/documents/financial-wellbeing-and-productivity.pdf

[2] https://www.theguardian.com/society/2020/sep/08/how-philanthropy-benefits-the-super-rich

[3] Philanthropy – from Aristotle to Zuckerberg. Paul Vallely. Bloomsbury Sept 2020. https://www.theguardian.com/society/2020/sep/08/how-philanthropy-benefits-the-super-rich

[4] RSA Action and Research Centre. Edited by Matthew Parsfield, with Professor David Morris, Dr. Manjit Bola, Dr. Martin Knapp, A-La Park, Maximilian Yoshioka and Gaia Marcus. Community Capital: The Value of Connected Communities. Oct 2015. https://www.thersa.org/discover/publications-and-articles/reports/community-capital-the-value-of-connected-communities

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