More equal than most

Dividing the spoils more equally can make for happier people and better businesses. Give staff a stake in the firm and the chance to add value

by Richard Reeves
Last Updated: 31 Aug 2010

Is the pay gap between men and women getting worse or better? Well, it depends which newspaper you pick up. The Financial Times points out that the gap in average salaries fell last year, and for the under-thirties it has disappeared. The Guardian (following the lead of the Equal Opportunities Commission) reports that the gap actually worsened over the same period. The fact that both are right might well bring Disraeli's dictum of ‘lies, damned lies and statistics' to mind. The difference depends on which kind of average you prefer. The median pay gap dropped from 13% to 12.6%; the mean rose from 17.1% to 17.2%. (How statistics teachers must love it when this happens.) In the old days - ie, the last century - the mean-median difference didn't matter too much. But now, the soaraway salaries of those at the top of the income scale are pulling the mean wage up very much more quickly than the median and, because these are mostly men, changing the picture of the gender pay-gap.

So behind the women's pay issue lies the even deeper one of the levels of overall inequality now being generated by the labour market, and all with barely a murmur of protest.

The pay of directors in the FTSE-100 rose by a mammoth 28%, in contrast to average earnings that are rising at 3.7% - just above inflation of 2.5%. Sports stars and performers are helping the trend. Everyone - just about - is getting richer. But the rich are getting much richer, much faster than everyone else. Two questions are prompted by the trend of the runaway rich: does it matter? And, if it does, what can be done about it?

To crudely summarise a bookshelf's worth of research, income inequality does matter. More equal societies are more cohesive, have higher levels of trust, better public services, greater social mobility, cleaner politics and happier people. When the gap between the super-rich and everyone else reaches a certain point, society is in grave danger of mutating into an oligarchy.

Even if this diagnosis is right, the trouble lies in finding a remedy. Maximum wages or punitive taxes are not practicable, at least on a national basis: the rich are mobile and may simply up-sticks. The real solution lies in the very organisation of corporate ownership. Every CEO claims that people are the company's greatest asset, and it is true that human capital and labour productivity are the new holy grails of corporate performance. But at the same time, employees as a whole are getting a smaller slice of the profit cake. This is unlikely to be sustainable.

Successful enterprises are increasingly those in which employees are active co-creators of value, rather than passive followers. But it is necessarily an uphill struggle to convince people to go the extra mile for the firm when the additional money thereby generated flows into the hands of others. As Marx (Groucho, not Karl) put it: ‘What makes wage slaves? Wages!'

But there is a mechanism by which the quality of working life and the productivity of organisations can be lifted: giving employees a financial stake in their firm and the opportunity to add value.

People who are co-owners of an enterprise are inescapably invested in its success or failure. But co-ownership is only half the story. It is when a structure of co-ownership is combined with a culture and systems of co-creation - consultation, information-sharing, employee forums - that organisational performance moves into a new gear.

Co-ownership and co-creation weave together, like the twin strands of a DNA helix, to deliver a new way of doing business and a better way of doing work. These "CoCo" companies - John Lewis is the biggest example, but there are plenty of others - are reaping productivity rewards.

But there is a reason for supporting co-ownership too. In CoCo companies, the share of profits going to labour is, by definition, higher than in other firms. And the gap between the boss's paypacket and the average employee is much lower. This is not to say that the leaders of these firms are living off baked beans; they still make more money than most people would know what to do with. But their remuneration cannot, as for their counterparts in traditional firms, be described as obscene.

Gordon Brown has said nice things about employee ownership and tinkered a bit with the tax system to help them out. But there is no loud movement demanding a more capitalist society (in the sense, of course, of creating millions more capitalists). But there are some signs of life: the newly branded Employee Ownership Association - for whom, to declare an interest I have written a report* - has formed an all-parliamentary group to lobby for greater support. The new-look Conservatives are inevitably all over the idea.

CoCo companies may offer a model for organisations whose time has come. A century and a half ago, various forms of mutual or co-operative enterprise were seen by many thinkers as the future. For 19th-century philosopher and economist John Stuart Mill, co-ownership held out the prospect for ‘the healing of the standing feud between capital and labour; the transformation of human life, from a conflict of classes struggling for opposite interests, to a friendly rivalry in the pursuit of a common good to all; the elevation of the dignity of labour; a new sense of security and independence in the labouring classes; and the conversion of each human being's daily occupation into a school of the social sympathies and practical intelligence'. But then came collectivism, with its bastard offspring state socialism. And so for most of the last century, the ferocity of the ideological battle between socialism and free-market capitalism has been such than anything smelling of the former was on to a loser. In fact, of course, CoCo capitalism is neither a left-wing nor right-wing idea; it is just a good one.

Richard Reeves is director of Intelligence Agency, an ideas consultancy.

*CoCo Companies: Work, Happiness and Employee Ownership, EOA

Find this article useful?

Get more great articles like this in your inbox every lunchtime