Aditya Chakrabortty: The earnings gap is both a political failure and an intellectual one

So now we know what Jeremy Corbyn’s new media strategy looks like. You keep schtum for ages, then go on TV and radio on the same morning and give out not one, not two but three stories at a go. That’s how many I counted in the 15 minutes or so he was with John Humphrys: a U-turn on freedom of movement for people, a declaration that he would be prepared to go on the picket lines with the striking staff of Southern rail and a call for a maximum wage. All that before he even does his turn in Peterborough this afternoon.

Of these, the first is a disappointing reminder that triangulation isn’t only a tool of Blairites, the second is commendable and the third raises a fascinating question. Why does the idea of a maximum wage seem so implausible? After all, it’s not a new concept. Reviewing public-sector wages for David Cameron, Will Hutton proposed that no council chief or health trust boss should earn over 20 times more than the lowest-paid employee – and the Conservatives applauded the proposal. At John Lewis, the ratio is set at 75 times. During the second world war, Franklin D Roosevelt proposed a maximum income of $25,000 (about $365,000 in today’s money) with a 100% tax on all income above that. Aristotle argued that the richest Greek should have no more than five times the wealth of the poorest person.

Yet the earnings gap continues to grow. In America last year, the three highest paid CEOs took home between them nearly $300m. This is plainly ridiculous. The average FTSE boss is not 129 times more productive than their workers. Nor are they putting in magnificent performances – measured by sales or by return on capital.

Everyone from Cameron to Vince Cable to Theresa May accepts this system is wrong and needs reform – by someone else. They hope shareholders will do it – and the shareholder revolts never turn into a pay revolution. They pray publishing pay ratios will shame bosses into being more restrained – and zip happens. This is a political failure and an intellectual one. Over the past 40 years, economists from Michael Jensen onwards have written entire libraries on how executives should be paid – how their incentives can be tweaked to align their interests with those of shareholders. So why hasn’t similar focus been turned to the question of how to incentivise pay restraint?

Polly Toynbee: People take what they can if there’s no one to stop them

He’s right, Jeremy Corbyn is absolutely right. Of course top pay should be capped. Look what’s happened in recent times: 20 years ago, FTSE 100 CEOs gave themselves an average of 45 times the median pay of their staff, says the High Pay Centre. Now it has shot up to over 130 times more, for absolutely no gain to anyone except themselves. Research from Lancaster University last month showed that there was negligible connection between executive top pay and the return on investment capital in companies; less than 1%.

There are no reasons why top pay has shot through the roof since the 1980s, except that people tend to take what they can if there is no one to stop them. Companies are positively encouraged by the remuneration consultants who tell boards what everyone else is paying, urging them to pay in the top quartile if they want to be seen as top quartile companies. (Only top pay, of course.) It’s a battle for top talent is their evidence-free claim.

But what genius could pluck the right maximum pay number out of the air? Cameron’s random cap on public sector pay no higher than his own £142,000 was duplicitious and unjust, another way to diminish the public sector while letting private pay rip. A pay ratio would be the way to do it: start by setting it back at that 45:1 rate. JP Morgan, a century ago, said his bank would not invest in any company paying its CEO more than 20:1, as it would mean that leader was in it for himself, not the good of the company.

The mayor of Portland, Oregon proposes to tax companies paying their CEO above 100:1. A swingeing great penalty for companies with greedy boardrooms sounds a good idea, cash to be redirected to their lowest paid.

But to propose anything as radical as this, a political leader first needs a track record of economic authority and at least a measure of credibility with business. Sadly, without earning that trust first, Corbyn’s idea will bite the dust, and further drag down his chance of persuading people to entrust the country to him. Being right is never enough in politics.

Stefan Stern: Companies should be forced to publish and justify their pay gaps

There’s no doubt the gap between what people at the top are getting paid and what the rest of the workforce receives has grown enormously over the past two decades. Most of the reasons offered to justify this are self-serving and unconvincing. Just how talented is this “talent”? The latest research from Lancaster University Management School suggests there is no link between grossly inflated CEO pay packages and the rather underwhelming performance of businesses over the past 10 years.

That said, trying to pick one number as a pay maximum is hard to do. Pay is going to vary, and some people may genuinely be able to claim that they have helped create a lot of wealth and are entitled to a good share of it. In any case, if you set a rigid pay cap, well-paid advisers are going to find clever ways of getting round it. That is what has happened before.



The practical way to expose the growing gaps in pay is to require companies to publish their pay ratios, between what the boss is getting and what the median employee receives in the first instance, although top-to-bottom ratios should also be explored. The publication of these ratios will put pressure on firms to explain and justify the pay gap. Shareholders will have the evidence they need to have a much more effective conversation with company boards. There may, of course, also be a role for higher income tax above a certain level.



It is quite hard to legislate effectively to force better behaviour from rich and powerful people. New rules can and do help, but ultimately a cultural shift is needed to make change stick. Business leaders and their shareholders need to recognise their shared responsibility to show restraint, and try to reverse the increase in inequality which has provoked so much anger and resentment in electorates around the world.

Joseph Harker: Why not close the gap in the traditional way: through tax?

There’s no doubt the sentiments behind Jeremy Corbyn’s proposals are right. Over the last couple of decades, pay for those at the top has spiralled, as they’ve outsourced employment to the cheapest parts of the world, automated much of the rest, and placed many workers into insecure zero-hours jobs, while at the same time they cream off the resulting increase in profits.

Backscratching remuneration committees are just one way in which the system has embedded itself into our biggest businesses, where the rewards for failure are just as high as for those who succeed. Something has to change, because across the world ordinary working people have twigged that the current system is not working for them.

Given that we live in a capitalist society, though, a crude pay cap – no matter what level it’s set at – would be almost unworkable and would cause a huge amount of turmoil within the business world, which would strongly resist it. Ideas have been touted for workers on boards, public shaming, or increased shareholder rights, but they merely tinker around the edges.

So given the key principle underlying all of this is inequality, why not close the gap in the traditional way: through tax?

Theresa May said this week she believes in sharing. There’s no better way to do this than to have those who earn the most contribute the most. As their rewards skyrocket, our business chiefs should be made to pay higher rates. Why stop at 50% when 60% or even 70% could be imposed on the very highest earners?

Of course this would have to be accompanied by an increase in funding for HMRC, to clamp down on the billions already lost in tax dodging. But that’s a service that would benefit all of us, not just the 0.1%, who can no longer be allowed to grow fat on the pay cuts and insecurity they impose on the rest of us.

Poppy Noor: Wage inequality fertilises the ground from which real inequality grows

Being on minimum wage is hard, but what’s harder is being on minimum wage in a city where people earn 10 times your salary – and feel it’s warranted.

Minimum wage jobs are some of the hardest and most derided jobs in the country. You’re always on your feet, you don’t have time to go to the toilet, and yet you are the most integral part of an entire company. If the chefs or waiters didn’t come in for a day at a restaurant, the whole place would grind to a halt. But somehow our bosses justify stealing our tips and sending us home an hour early to save the £7.20 that they wouldn’t notice fall out of their pockets, while we walk home in the cold to make up for it.

These things are a signal of how wage inequality fertilises the ground from which real inequality grows: the type that justifies the idea that for some, our basic needs are a luxury. Like being able to afford a place to live in, having three meals a day, or seeing our friends. Wealthy customers will remind us that we cannot exist without them – as they often would when commenting that I’d just lost my tip for not serving them on time, or when one once called me a servant to my face.

I’m not angry at people who earn a lot of money. But I am angry at a system where money equals human value. I am no less the person who graduated from a good university or writes for the Guardian when I am a waitress. I want to live in a society that recognises me as both of those things, and still equally as human.

If introducing a maximum wage cap helps people to recognise that, I’ll be happy.

Ellie Mae O’Hagan: A maximum wage is a policy that responds to the current political moment

It’s fair to say Jeremy Corbyn’s relaunch as a populist leftwing leader has not gone smoothly. His response to the humanitarian crisis in the NHS was somewhat slow, and his apparent reverse ferret on freedom of movement elicited mixed responses from his base of supporters.

But the announcement of a maximum wage is exactly the kind of move many on the left hoped for when the rebranding of Corbyn as a populist was first mooted (in fact, it was historically a pet cause of Bernie Sanders, who advocated a 100% tax rate on any earnings over $450,000). This is a policy that does not yet have the support of a majority of the public (39% in favour, 44% opposed in September 2015, according to YouGov) but then, the notion of leaving the EU was not backed by a majority of the public when the referendum was first announced either. As Dominic Cummings, campaign director of Vote Leave, wrote in a recent blog: “Vote Leave exploited the [political circumstances] imperfectly but effectively.”

Indeed, a maximum wage is a policy that responds to the current political moment: yawning inequality and resentment of “the Davos class”, as Naomi Klein puts it. And unlike ending freedom of movement, it does this by redirecting people’s anger towards society’s most powerful and away from marginalised groups. What Brexit taught us is that the British public are open to radical political change; the left should be taking advantage of that by putting forward socialist ideas that have hitherto seemed unpalatable. A maximum wage is part of that process.

As usual with Corbyn, presentation was a problem here. It’s a shame he announced such a provocative policy almost as an aside in a radio interview. A proper policy launch with a bit of fanfare would have been good – possibly in the run up to Fat Cat Wednesday, the first day of the year when top bosses’ earnings have already surpassed the annual salary of the average UK worker. But the fact that this debate has begun is exciting: people out there are angry at a broken and unfair economy. The left should be talking to them.



