New Research Shows Pay Gaps Cause Unrest

High Pay Centre

High Pay Centre analysis shows hidden cost of big pay differentials within organisations

Workplaces with big pay gaps between the highest and lowest wage earners suffer more industrial disputes, more sickness and higher staff turnover than employers with more equitable pay differentials, a landmark report reveals today.

A High Pay Centre report today shows, on average:

• Bosses earning 10 times more than the lowest-paid staff in their organisation experience industrial action at least once a year. Those with lower pay differentials do not.
• Workplaces where top earners get 8 times the pay of junior staff report at least one case a year of work-related illness. Workplaces with pay differentials of 5 or less do not report any.
• Organisations with average pay ratios of 7:1 experience higher staff turnover.

The report, The High Cost of High Pay, is based on a survey of almost 2,000 workplaces and reveals the true cost of pay differentials within the workplace.

High Pay Centre director Deborah Hargreaves said: “High executive pay is not only frequently unmerited but has a huge hidden impact on the rest of the organisation and society as a whole.

“Whether it’s through staff turnover, sickness, low morale or industrial action, big pay gaps undermine employees’ loyalty to the company and their managers.

“Employers suffer lost productivity, have to pay more sick pay and legal and recruitment costs as staff left feeling the financial and emotional strain are driven even further into the ground.”

The High Cost of High Pay is described by authors as ‘an important step in challenging current thinking and practice around reward strategies in the workplace’ and tackles the basic premise of the so-called ‘Tournament Theory’. The theory claims that bigger pay gaps encourage people to work harder, was trumpeted in Boris Johnson’s claim that “inequality is … a valuable spur to economic activity” and is implicitly applied by most major UK firms.

The report  questions whether an employee is likely to have higher motivation if his or her bosses earn 80 times more than them.

It warns that any positive effects of motivation from extreme pay inequality are likely to be outweighed by impacts on staff morale and shows how, when stretched too far, pay differentials actually have a negative impact on companies.