Stefan Stern is director of the High Pay Centre and a visiting professor at Cass Business School
It is all right for some. And by “some” I mean the chief executives of FTSE100 companies, who on average enjoyed a 10 per cent pay rise last year, unlike the rest of us.
Your typical FTSE100 boss is taking home £5.5m a year.
Of course it’s not just the overall package (or ‘quantum’, as pay experts euphemistically call it) that counts. The gap between the top and the average worker matters too.
It is this sort of pay ratio that the new prime minister, Theresa May, had in mind when she called for greater disclosure of pay data in a recent speech .
FTSE100 bosses are getting paid roughly 150 times what their average employees are. This is unprecedented (in the UK – in the US the gap is even bigger).
Just 20 years ago a ratio of 40 or 50 to one would have been the norm.
And as May’s rhetoric indicates, it is becoming increasingly hard to justify the gap we see today.
But there is one sector where such extremes are rarer – tech. Both Sage and Arm Holdings (still a FTSE100 company until the Softbank deal goes through) have stuck by a pay ratio much closer to that 40 times norm of two decades ago.
They are among a very small handful of FTSE100 companies operating a pay ratio of that kind. So why is tech different?
For one thing, the denominator is bigger; in other words, average salaries are clearly going to be higher in a business where high levels of technological skill are required.
But there also seems to be a bit more restraint on pay at the top too – at least until a knock-out takeover bid, which, in the case of Softbank, will see ARM staff take home almost £400 million in outstanding shares. Tech, perhaps, is just a bit more egalitarian a sector than others in the economy.
The rewards at tech firms can be gigantic too, if you’re lucky, and good. Founders and early employees may accept relatively low pay at first in return for a piece of the equity action, and the possibility of a vast pay-out on flotation or sale to a new owner.
But the tighter pay ratio of a close-knit firm can help bind people together – and tech firms obsessed with finding ‘top talent’ know that. It creates a sense of common purpose, that ‘all in it together’ ethos sometimes devalued by politicians on the make.
A smaller pay gap can also be helpful for motivation levels. Or at least, it avoids demotivating people.
Last December, the Chartered Institute of Personnel and Development published research which suggested that 60 per cent of employees felt demotivated by the gap between theirs and their bosses’ pay .
The lesson is becoming clear. If you want to avoid professional humiliation or despair, sign up for that tech job now. Better still – try to be employee number five at Facebook.
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