How to upset super-rich exploiters: The maximum wage

Small change: That’s all employees can hope to get while company executives retain sole power to determine pay.

It seems to This Writer that Jeremy Corbyn has struck a nerve, here.

All he had to do was mention the possibility that Labour might introduce rules limiting executive pay in relation to that of the lowest-paid employee and a storm of protest arose – from the high-paid, the privileged, and the ‘entitled’.

It is exactly as This Site stated a couple of days ago – and as Shadow Business Secretary Clive Lewis has pointed out in an article in the Mirror.

“It’s a strange country indeed where the fact that top bosses earn more in two and half days than most people earn all year causes less outrage than a proposal to limit pay at the top. I suggest looking more closely at who was causing the uproar,” he wrote, echoing my own words.

He pointed out that claims that everybody benefits when the rich get richer are nonsense: “The wealth isn’t trickling down, it’s flooding up”.

Higher pay rates mean CEO’s are causing instability by leaving after only short tenures: “They are cashing in rather than aiding the long-term growth of the company.”

There is no point in ‘naming and shaming’ companies whose bosses take huge salaries and incentives while employees have to claim in-work benefits to survive, because: “You can’t shame the shameless.”

Publication of Directors’ pay was originally intended to shame companies into restraining pay, but has had the opposite effect, encouraging companies to compete with each other on pay. And those that might want to act find they can’t – because they would be paying less than the going rate, attracting nobody.

So it is the duty of government to act in the name of the majority.

Perhaps the only serious criticism of the plan to limit firstly the pay of private companies carrying out contracted-out work for the government, so that bosses earn a maximum of 20 times their lowest-paid employees, is that the traditional way of rebalancing inequality is via tax.

Why can’t taxation be used to address the issue, as Joseph Harker asked in The Guardian?

The simple answer is that it can – but not on its own.

If rich executives were taxed extra, solely to fund in-work benefits for the poor, they would bitch like hell that their money was being stolen and given away as handouts for the undeserving.

It would be a lie, but it’s one they like to use.

The Tories also like to claim that the higher-paid would simply find ways to avoid paying tax if the rate was higher than it is now – which is why they have been merrily cutting back the amount that they and their rich friends contribute.

No – pay needs to be re-balanced so that working people receive the amount they deserve.

Has anybody ever explained what company executives do that is so deserving of – what is it now? – 180 times as much remuneration as the people who actually generate their firm’s profits? Anyone?

Taxation is appropriate, as Mr Lewis writes – but only in conjunction with fair pay ratios. A higher tax rate for people earning obscene amounts could only be seen as fair if it is combined with tax breaks for firms that offer fair pay. It has been suggested that such businesses could even be rewarded with a British Standards ‘kite mark’.

So the idea of a maximum pay level, set at a certain multiple of minimum pay at any given firm, is sound.

Suspicion should not be heaped on Jeremy Corbyn, Clive Lewis and Labour for suggesting it.

It is not an unrealistic idea, as many have claimed – in fact several other countries have already implemented it, but your bosses probably didn’t want you to know that. Take a look at this Skwawkbox article for details.

Instead, let us place blame for the current situation where it is due – on the corporate mouthpieces who try to suppress any action that may hinder their rampant, naked greed.

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15 thoughts on “How to upset super-rich exploiters: The maximum wage

  1. autismandate

    I think a nerve was struck with the news night presenter kirsty what’s -her-name when she was interviewing Charkbati . I read somewhere kirsty signed an £ 8 million contract to do Newsnight. The best she could do apart from being nasty, was to produce a mickey mouse graph cartoon purporting to show a drop in wages gap.

    1. Barry Davies

      Drop in wages gap between whom exactly, after all the percentage wage raises automatically increase the division because 1% of £100 is far less than than 1% of £10,000 for example.

  2. Paul

    As far as I know only Cuba these days has a maximum wage. Egypt has had one since 2014, I believe, and lost a load of its top people, particularly those working in its banking and financial sectors, who upped and moved to other Arabic speaking nations or overseas to other countries. Not one other significant economy has a direct earnings limit, as far as I know, including Russia and all other countries formerly part of the USSR.

    If it were such a great idea wouldn’t there already be one single successful country somewhere on the globe where a maximum wage has inculcated fairness coupled with a prosperous economy?

    It’s a daft idea, Mike, which will sink to earth as quickly and heavily like a lead balloon. Why would putting a ceiling on earnings be better than taxing them progressively and redistributing the income via the social security system coupled with tax cuts to low earners? Capping earnings would only lead to a brain drain of talent from the UK and lower tax revenues which could be reallocated to make life better for the less fortunate.

    It sounds like a good idea on grounds of fairness but would turn out to be either a zero-sum gain or quite possibly moderately to hugely damaging.

    1. Mike Sivier Post author

      Okay, let’s raise the minimum wage to 1/20 of the maximum, then.
      Don’t tell me – you opposed the minimum wage too.
      I’ve explained why taxation isn’t the answer. Paying people properly for their work is the right answer. Why are you against that?

      1. Paul

        I am 100% for raising the minimum wage to a genuine living wage but capping the highest wages wouldn’t contribute one whit to making anything so laudable happen. Taxing the richest people on income and assets would genuinely raise a lot of money which could be redistributed to reduce poverty and make society fairer: setting a maximum wage would drive useful people away from these shores and wouldn’t raise a penny more revenue to help the struggling or the underdog, quite the reverse in fact.

        The real question is: Would a maximum wage make life better for those on the minimum wage or living on very low benefits? And the answer is: No. In fact it would most likely make things even worse and life harder for that section of society. I am against poverty and injustice, Mike, not wealth in itself per se.

        Why particularly the 1/20 ratio? I remember David Cameron pre election mentioning this figure in respect to the differential between top salaries and average salaries.

        Where did that come from I wonder.

    2. Zippi

      It is one thing to earn heaps from sales – the more that you sell, the more that you earn – however, some people have RIDIC£UOUS (aye) salaries. Who needs millions of pounds a year? Really? Who NEEDS millions of pounds? What makes it worse is that these same people don’t want to pay their taxes either. Why should they have it both ways? Earn lots and pay your tax, or have your earnings capped. People moan when workers in so-called essential services strike for better pay ad conditions, call them selfish, greedy and call for them to be sacked, replaced, or prevented from striking. Nobody asks that their pay be raised to match our need of their service. Who do we need more; footballers, bankers, Chief Executives of multinational companies, or doctors, nurses, teachers, train drivers, bus drivers, and who do we value more? All of those people who poo-poo the Unions should do a history lesson and find out why Unions came into being in the first place and you can guarantee that these same people spit on the unemployed, too. If we keep putting people out of work and giving all of the wealth to a few, what do they expect to happen? The system is unsustainable.
      Hmmm… You mention that people in the banking and financial sectors have fled whence a maximum wage was introduced. That should tell you everything that you need to know. What crashed the global economy? You are right, however, not in saying that it’s a daft idea but in saying that it won’t work and the reason is GREED! When we are children, we are taught to share (some of us are) and to look after our siblings, our friends. Why is it, then, that when we become adults, we s**t on everybody? This is not the kind of society in which I want to live. All that most people want to do is earn a decent living, to pay their own way in the world. It’s not much to ask. Something obscene has happened that needs redressing, NOW. We, as a society, MUST say that this is unacceptable and DEMAND change, rather than to capitulate, constantly, for when the shoe is on the other foot, who is fighting our corner? Why must the poor fund the rich, when the rich can afford to feed the poor, house them and clothe them? Why are we led to believe that the poor are a drain on society and our resources, when the opposite is true? how have we allowed this to happen?

  3. Martin

    I couldn’t care less how much money Paul McCartney has or how rich the Adele or Duke of Westminster are. Or whether they have done anything to deserve it or not. I do care about how poor the single-parent living at the end of the road is and how difficult life is for the elderly and the unemployed because they can’t afford to nourish themselves properly or heat their homes in winter. So to be honest I’m not much interest in whether Labour curbs the excesses of the rich, which probably won’t mean more money for the poor anyway, but what Labour is going to do materially to make life better for the very hard pressed and the struggling.

    What is Labour actually going to do for such people given the chance?

    That’s what I want to hear about.

    Besides if you’re talking about wealth what about inherited wealth? And wealth owned frozen in the form of property and land? There’s much more money owned by the richest of the rich in the form of non-monetary assets than liquid earnings. And even if you capped wages and set a ceiling on how much a person could be paid for any job what would stop companies from getting around this by giving their employees payment in kind like stocks or shares, costly rarities like antiques and works of art which were destined to go up in value over time, or expensive cars, holiday, even freehold/leasehold mansions for them to occupy in lieu of salary? I’m sure there would be an infinite number of ways that firms could reward their staff over and above any hypothetical maximum wage which would make a complete nonsense out of it.

    1. Mike Sivier Post author

      Er, you do realise that the whole point of this plan is to make employers raise the wages of their lowest-paid workers? That would be the only way they could justify their own high wage packets. It would also be something Labour is going to do that will materially make life better for the hard-pressed and struggling.
      This particular policy is not about inherited wealth, although I certainly agree that it is worth consideration.
      Your concern about payment in kind is valid. Labour should legislate to account for that – so that no remuneration, in any form, should come to more than a particular multiple of the lowest-paid workers’ earnings. This is, after all, a matter of being seen to treat everybody reasonably. If firms were providing all of these perks to their highest-paid employees, what perks would they be offering to their lowest-paid?

      1. Martin

        Oh, Mike, you and Jeremy are so naive it’s endearing. The idea that capping top salaries based on a ratio to lower salaries will “encourage” lower salaries to go up because “bosses” are so avaricious they will raise the lower wages of their workers to increase their own is preposterous. Why? Because in most companies the lower paid workers still get paid, collectively, the most money and so increasing the lower wages costs companies more, generally, than paying top personnel millions. Increasing a very large number of low wages is, collectively, much more expensive than paying a small number of managers preposterous amounts. Arithmetic shows that significant increases on lower wages in medium to large concerns, with large numbers of employees, are not going to happen quickly or easily, certainly not significantly enough to allow top salaries to rise in meaningful ways, well, certainly not based on the 1/20 ratio mentioned by Jezza.

        Capping top salaries won’t make low wages rise because ultimately all salaries in a business depend on the profitability of the business and wages cannot go up for everyone unless the money is there to allow it. A small number of staff raking in disproportionate rewards does not mean that the company employing them has the means to raise lower wages, which comprise the lion’s share of company payroll, to satisfy some fixed ratio arbitrarily set between lowest and highest pay.

        Basically: To jack up a small number of top salaries to ridiculous levels is easier than raising a large number of much lower wages in any meaningful fashion. Private companies can afford to pay a small number of staff a lot of money – I’m not saying that this is good – but find it much more difficult to significantly raise lower wages because the bulk of their employees will most likely be on lower wages and therefore, collectively, responsible for most of the company’s payroll.

        A maximum wage wouldn’t raise the pay of the lowest worker much unless most people were high paid and many fewer people low paid. When more numerate Labour advisers apprise Mr Corbyn of this fact and explain their sums to him I expect the maximum wage to be quietly dropped well before 2020.

      2. Mike Sivier Post author

        Your logic is faulty in several ways:
        Firstly, the vast majority of firms in the UK are small – not medium or large. If bosses are paying themselves large amounts and their employees a pittance, the balance can be redressed fairly easily. To be honest, the change probably won’t affect them at all.
        In medium and large concerns where there is a large disparity, the point is that the bosses are taking too much. If this measure means they would have to take a pay cut, then so be it. It will be a sign of their greed. This is not about trying to make more money to bring salaries up; it is about redistributing what is there to make it more equitable. I know that will be an alien concept to some of the libertarians in This Site’s readership.
        Your concerns about the profitability of a business are groundless. Research has shown that firms become more profitable if the workforce is well-paid, because they are happy in their work and do not have to worry about survival. I have written several articles on this previously.
        Nobody cares whether jacking up a small number of top salaries is easy; we care about whether it is equitable. It isn’t.
        Private companies can afford to pay ALL their staff more money – any talk that they can’t is nonsense. Look at their accounts and anyone will see the truth of it.
        A maximum wage would increase the pay of most workers significantly enough to lift them out of in-work benefits, give them the self-respect that is sadly lacking at the moment, improve the quality of their work and the profitability of their employers’ company. Having a few people with super-high pay and a lot on a pittance is a disaster.
        Mr Corbyn is perfectly numerate. What you mean is, when advisors who have been briefed by the selfish rich get to Mr Corbyn, you hope they’ll scare him into changing his mind.

      3. Martin

        When Labour’s manifesto is eventually published my bet would be that there will be no mention of the maximum wage. But you never know. Tristan Hunt has just resigned! I didn’t expect that! Another by-election then this time in Stoke-on-Trent. In 2010 there was a 4.4% swing away from Labour and it will be interesting to see whether or not the next Labour parliamentary candidate standing in Stoke will do better or worse than Hunt did last time. If he/she doesn’t it would be bad. If Labour lost a formerly Labour seat to some other party – UKIP support rose by 18.5% in the constituency in 2015 – it would be catastrophic.

        What is interesting is that this by-election constitutes a real test of Labour’s situation as it stands. Could Labour’s decline in Stoke have happened because Hunt was a Blairite? And would a more left-wing Corbyn-like replacement actually do better, or even worse, than the right-of-centre MP he/she will potentially be replacing? This will be a litmus test which should reveal how Labour’s fortunes might fare under Corbyn in the North. Imagine the fallout were a Conservative, or, unthinkably, a UKIP PPC was elected to represent Stoke-on-Trent and Labour lost a former Labour seat to either of those in the Commons.

        (Hopefully this disastrous worst case scenario won’t occur.)

        I’ve kept a copy of the address of this page so that when Labour’s manifesto is eventually extant and no mention of the maximum wage appears anywhere between its covers I can post a message on your blog, include a link to this page, and write the four word sentence “I told you so.”

      4. Mike Sivier Post author

        Well, you were mistaken about the maximum wage, which is actually a 20:1 ratio between the highest-paid and lowest-paid in any company.
        And Labour won in Stoke, of course.
        Should I be the one writing, “I told you so”?

    2. Zippi

      Question: Why is it that, when it comes to pay increases, the highest paid get a higher percentage increase than the lowest paid? Why not increase everybody’s pay by the same percentage? Those who are earning more will still earn more and their increase, in monetary terms, will be greater. Why this disparity?

  4. Zippi

    Everybody benefits, when the rich get richer! Employees are paid less and expected to work more. The wealthy got tax reduction, from the Tories, because they didn’t pay their tax, anyway. The wealthy spend their money in establishments that are owned by wealthy peoples, for wealthy peoples, have private health insurance and go to private hospitals (which are staffed by N.H.S. consultants), they extend their existing properties, putting them further out of the reach of those who might otherwise be able to afford them and need them, they buy up properties off plan, so that those in need cannot find a home… Aye, everybody benefits!

  5. Simon

    Unless I am mistaken Corbyn wasn’t talking about implementing an across the board maximum wage for all British companies but only for those bidding for government contracts to supply goods and services. How this would play out as far as something like pharmaceuticals were concerned is anybodies guess since most companies developing and manufacturing drugs are foreign, set their pay scales outside of the UK, with a lot of the newest and best drugs only available from one particular supplier. So if some company which supplies essential and quite possibly unique products or services to the NHS, say, didn’t, couldn’t or wouldn’t obey the UK maximum wage legislation I assume that the NHS wouldn’t be able to purchase drugs or services from that company since no contract to supply could be issued under such circumstances.

    To be honest not a lot of what Jeremy Corbyn said on the matter made much sense to me when I heard it but in fairness, before I make up my mind, I’m willing to wait until somebody explains exactly what Corbyn’s proposals for a maximum wage actually are.

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