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We Must Tackle Outrageous Pay Disparities

1st April 2017

By John McDonnell

When Jeremy Corbyn was questioned in a recent BBC interview about high pay he raised the prospect of introducing pay ratios to address the outrageous disparities between the pay of company directors and chief executives and the workers in their companies. As usual he was pounced upon by the media and the Tories but what emerged within hours was the overwhelming popular support there was among the general public for the idea of tackling pay fairness by means of pay caps and pay ratios.

Since then broadcasters and journalists have returned to the idea to see how the argument for fair pay can be reframed and undermined. The usual line of attack is to contest whether the proposal for pay ratios is either justifiable or feasible. Recently the justification for Jeremy’s proposals for the introduction of pay ratios received a significant boost by the publication of the report by Pensions and Investment Research Consultants (PIRC) which analysed the data collected from FTSE companies on their pay ratios.

The PIRC investigation placed the BGEO banking group top of the table with a ratio of 731 to one. According to the latest figures Sports Direct has its highest paid chief executive earning 400 times the average pay of its employees. G4S has a pay ratio of 296 to one. Tesco has a pay ratio of 258 to one. Jeremy now has allies in, for some, surprising places. Shareholder groups are now so concerned at the scale of pay differentials that shareholder mutinies are becoming increasingly popular at company AGMs. Shareholders have also become increasingly outraged at the level of pay deals for senior executives in the firms in which they hold shares. There have been particular concerns raised at the payment of substantial pay and share awards to company executives even where it is difficult to reconcile the underperformance of the company with the increase in pay awarded to the executives.

These obscene levels of inequality are the result of a steady erosion of both corporate accountability and trade union rights. Even David Cameron argued for pay ratios to be introduced within the public sector and proposed a pay ratio of no more than 20 to one. Professor Prem Sikka, one of my advisers, has co-ordinated a group of experts looking at the whole area of corporate governance, including processes of accountability to secure fair pay and tax. The group is called the Corporate Reform Collective and comprises a significant array of experienced lawyers, academics and tax experts who have come together to explore the detail of corporate abuse and reform.

The collective’s book Fighting Corporate Abuse was published in 2014. I spoke at its launch to welcome the contribution the collective was making to the debate about corporate reform. Many of the ideas in the book address the lack of accountability in companies and offer practical methods of securing greater control of corporate activities - not only to prevent corporate abuse but also to ensure that companies contribute positively to society, protecting consumers, their workers and the wider environment.

Prem Sikka’s take on inequitable pay ratios is to place greater emphasis on democratising the operation of the company. This involves not just the tokenistic placing of a worker on the company board but the introduction of supervisory structures, endowing workers and consumers with democratic power to determine pay and other rewards.

This whole area is rich and fertile ground for the development of policies by the Labour Party to introduce structural changes to our economic model that have the capacity to contribute to transforming the economy and the lives of working people. Media opponents of the left have put about the canard that we have no policies or lack clear direction. It’s a line of attack aimed at demoralising our support.

When we point to the ten point policy programme that Jeremy put to the Labour Party conference the response is that these are just slogans not policies. When we publish detailed policy reports or papers, or make speeches on the detail of achieving the ten point plan, the media either refuses to publish them or distorts them.

That’s why we have taken to the road again to explain our policies and to engage as widely as possible with party supporters and the general public. I have organised a series of economic conferences around the country. The first two, in Liverpool then Glasgow, have been packed out with people enthusiastically discussing the detail of policies to create an economy in their area which provides the jobs and prosperity distributed fairly. We are also launching a tour of the country to discuss and plan how we decarbonise our economy, identifying the projects needed to achieve that transformation.

Check out the Labour Party’s website for details and come and participate in these exciting initiatives. 

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