The gap between executives’ salaries and the wages of their average employees is seen as growing around the world, as workers believe CEOs care more about getting wealthier than about income inequality.
Conducted on over 25,000 people across 25 countries, CNBC’s and Burson-Marsteller exclusive survey on the Global Corporate Compass found that 76 percent of the public and the C-Suite agreed that the gap between CEO salaries and the salaries of their average worker is growing.
More surprisingly, a majority (57.5 percent) of the C-Suite polled in both emerging and developed countries agreed with the statement that “corporate CEOs don’t care very much about growing income inequality because it means they are getting wealthier”.
As the world recovers from one of its worst – and longest — recessions and as wage growth continues to stagnate, the debate about inequality has been brought at the forefront of the global agenda. So much so that Thomas Piketty’s book “Capital”, which focuses on wealth and income inequality arguing that unequal distribution of wealth leads to social and economic instability became a best-seller.
The International Monetary Fund seems to be of the same opinion. It wrote in a January 2014 report into Fiscal Policy and income inequality that “there is growing evidence that high income inequality can be detrimental to achieving macroeconomic stability and growth” and that public support for redistributive policies has grown in recent decades.
The impact of income inequality
The perception of a growing income gap between CEOs and their average worker can hurt performance. Charles Cotton, performance and reward adviser at the Chartered Institute of Personnel and Development (CIPD) told CNBC that if workers “perceive that it’s one rule for top management and one rule for employees, than it’s going to impact on the commitment and loyalty of the organisation as well as their motivation and productivity”.
“If they don’t feel they’re getting a fair deal”, he continued, “then they aren’t going to be motivated at work to do a good job.”
Despite the financial crisis and the “banker bashing” that ensued due to the perception of excessive risk-taking fueled by disproportionate bonuses, the trend for income inequality did not change.
In 2013, CEOs at some of the U.S.’s major companies earned on average nearly 296 times their typical worker’s salary, according to research from the Economic Policy Institute published in June 2014.
While this figure is lower than the 2000 peak of 383.4, it has recovered from the lows of 2002 – where it stood at 188.5 due to the fall in the stock market – and 2009 (193.2). In 1965, the ratio was at 20-to-1.
The perception that corporate leaders are better rewarded for the services than the typical worker could have wider implications and lead to employees feeling alienated and not trusting their management, explained CIPD’s Cotton. And just like in politics, he added, falling trust could lead to people taking to the street to protest.
“You’d eventually end up with social unrest if people, in the rest of the organization, don’t see their living standards starting to improve or if they don’t think that rewards within the organisation are fairly distributed”, Cotton warned.
One way to address dissatisfaction with pay could be to introduce a “living wage”, according to professional services firm KPMG’s Mike Kelly.
In Britain, this is an hourly rate set independently and updated annually, calculated according to the basic costs of living in the U.K. It currently stands at £8.80 ($14.40) for London and £7.65 ($12.50) for the rest of the U.K. By contrast, the country’s minimum wage will rise to £6.50 per hour in October.
Kelly told CNBC on Wednesday that KPMG supported the U.K. living wage because “if you want to be a great place to work, it’s got to be a great place to work for everyone”.
According to Kelly, companies that implement the living wage, “will improve employee retention, get better employee engagement and better productivity. We’ve experienced much less staff turnover, and happier staff”.