In May 2010 UK Prime Minister, David Cameron, appointed the economist and former editor of The Observer and Chief Executive of The Work Foundation, Will Hutton, to lead an inquiry into cutting top public sector pay. This past week saw Hutton publish the Interim Report of the Fair Pay Review.
The key issue, and the subject of newspaper headlines, has been his proposal for a maximum pay multiple of 20:1 i.e. a rule that executive pay should be restricted to no more than 20 times the median wage. Interestingly, however, the report itself is not definitive about the 20 times limit and in fact refers to "a maximum multiple pay limit, such as 20:1". (My emphasis. In fact that number was apparently set in the brief.)
This is an interesting caveat. The concept of maximum pay multiple is hardly new. Indeed, I understand it was one of the factors that underpinned the initial success of Ben & Jerry's ice-cream. The rate is therefore more likely to be controversial than the principle, although there will be many who claim that is undemocratic.
Yet this is surely an issue for our times. And, nor, as indeed the report implies, can public sector pay be addressed in isolation. Chief executive pay for the FTSE 100 in 2009 was 88 times the UK median earning, (up from 47 times in 2000.) This makes senior public sector pay increases inevitable. And society as a whole cannot afford this kind of discrepancy. Forget about trying to win employee engagement; this is the stuff of revolution.
It is not just a question of fairness and equity. Ask yourself, "Is a pay differential of this magnitude economically justifiable?" "Is any one person worth that much more to your business?" In today's fast-paced world, somebody at the lowest level in the organisation can bring an organisation to its knees just as easily as the guy at the top. If you doubt this, just look at BP!
It will be fascinating to read the final report. As a business leader, however, you should be considering these issues now. Your competitive advantage will come from setting the pace, not following the pack!