A ratio cap of 20:1 won’t make pay fairer

Darren Johnson AM has been a Green Party member of the London Assembly since May 2000

Will Hutton’s interim report has given substantial credibility to those arguing for fair pay in the public sector, and reinforces the need to also address the private sector. But the proposed fair pay ratio of 20:1 is too high, and would have little bite in London. According to repeated British Social Attitudes surveys cited by Hutton, the public prefer a 6:1 ratio, so unveiling a “fair pay policy” based on a maximum of 20:1 next year would have little credibility with the public.

Hutton acknowledged that there is a danger of a cap becoming an upwards target, which senior staff could see as a new higher benchmark for their salary. But there is also a danger that such a high pay multiple as 20:1 sends out a signal that this level of pay is fair, which may in turn shift public attitudes.

Hutton notes that the current average difference between entry-level salaries and the median top salaries is currently 10:1. The case for 10:1 is further strengthened if we look at the current picture in London.

The Mayor of London’s salary is £143,911, or approximately 9 times the London Living Wage – the lowest pay that City Hall’s cleaners can receive. Earning ten times the London Living Wage still puts the recipient in the richest 1 per cent of the UK population (find out where you fit in here). Would a ratio of 10:1 not be closer to the public’s understanding of fairness?

The fair pay ratio could also be a powerful driver to bring low paid workers onto the London Living Wage if employers had to include subcontracted workers in their calculations. Subcontracted workers are typically paid close to the National Minimum Wage.

If you have to include them, you would have an incentive to raise them up from £11,872 to £15,716 a year to allow for higher top pay (using GLA Economics figures for annual full-time equivalents).

Within the Mayor’s Greater London Authority group only one employee would be affected by a maximum pay ratio of 20:1 if based on the difference between the lowest and highest paid employee: The Chief Executive of Crossrail (£554,495 in 2009/10). This excludes the group’s subcontracted workers, who are all either paid at least the London Living Wage or will be within the next year.

If you include subcontracted cleaners when determining the lowest level of pay then the Mayor’s Commissioner of Transport for London (£393,551) and the Chief Executive of the Olympic Delivery Authority (£390,000) would also fall foul of the cap. Surely we don’t want to send out a signal that those incomes are fair when their cleaners struggle to make ends meet?

If you then lower the cap to 10:1, at least 60 staff in the GLA group would exceed the limit.

In London’s local councils, a few chief executives would probably be caught out by a 20:1 ratio; the chief executive of Wandsworth because he earns a staggering £299,925, and some others because they pay salaries below the London Living Wage. At least 100 employees would exceed the 10:1 limit, out of tens of thousands employed by those councils.

To date only two councils in London have actually specified the London Living Wage in contracts (Lewisham and Tower Hamlets), and one (Islington) brought a contract in house to lift their cleaners out of poverty pay. It is not known exactly what all subcontracted workers are paid, but it is likely that a great many cleaners, catering staff, park wardens, carers and other workers are being paid poverty wages.

It’s when you compare the councils’ chief executives that it gets really interesting. I haven’t been able to get consistent figures for the lowest paid employees, but the difference in pay between the chief executive’s pay and the London Living Wage varies from 11 times more in Ealing, Hackney, Havering, Hillingdon, Hounslow, Kingston, Richmond, Sutton and Tower Hamlets to 19 times more in Wandsworth.

If those eight chief executives can be recruited and retained close to a pay ratio of 10:1, that suggests it wouldn’t be unreasonable to see 10:1 as a fair limit and an aspiration; 20:1 could simply be the pragmatic ceiling, beyond which remuneration would need special consideration and scrutiny. Those chief executives would just need to implement a London Living Wage policy to save their remuneration being dragged much further down.

This in fact is the approach that the London Assembly endorsed in June, calling for the Mayor and the GLA group to implement a 20:1 cap with a long term goal of 10:1 whilst continuing to implement the London Living Wage across all contracts.

The challenge I am taking on in the coming months is to pressure the Mayor to implement this idea while Hutton finalises his recommendations. A good first step, in this time of cuts, would be for senior staff to take voluntary pay cuts, as the chief executive of the Olympic Delivery Authority has done in recent years.

Without a wider reorganisation of senior management roles to reduce high pay such a move would be largely symbolic, but it could at least help give a 4% pay rise to the GLA’s lowest paid staff as Unison members and the London Assembly have argued. Wouldn’t that be the very definition of fairness, for a Mayor who professes a commitment to the principle?