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Why High Pay Day matters

Have you ever wondered how long it would take a CEO to make the UK’s average yearly salary?

High Pay Day marks the moment at the start of the year when median pay for a FTSE 100 CEO surpasses the median annual wage of a worker in the UK. This year it took just 30 hours. Last year, following the grind of a global pandemic, it arrived a little later on the 7 January at 9am.

Businesses and the general population alike suffered hefty financial burdens in the wake of COVID. What sets this year apart, is that despite having learned the crucial value of key workers (children in schools, mail delivered, food and goods transported) many of those key workers are currently involved in protracted and knotty strike action over real terms pay cuts. Meanwhile, CEO pay has risen and can be anywhere between 12 to 14,000 times what their employees receive.

The recovery of CEO pay – up 39% since this time last year – is set against a backdrop of small businesses struggling to survive a tide of unsustainable costs, while families in prosperous cities like Birmingham and Glasgow resort to skipping meals to stretch budgets, as well as an 81% increase in foodbank use since 2017. Workers see just a 6% increase to help them navigate staggering price increases in energy bills, food and other essentials.

Why, then, are the dividends reaped by the most powerful leaders in business not reflective of the extraordinary hardship faced by the majority of society? Well, the answer isn’t necessarily to be found in the bounty of those companies, but rather in the mindset of its leaders. It lies in what many choose to prioritise and whether they are able to make strategic decisions which go beyond the current culture of short-termism and the growth imperative.

Humans are not the most reliable decision-makers, being susceptible to countless biases and self-interest that frame their assessment of their contribution in misleading ways. The same is true of leaders, whose experience of power amplifies such pre-existing mindsets, increasing their confidence to act on their immediate thoughts and feelings, however biased they might be. In the workplace, this can lead to situations – or worse, an embedded culture – that are influenced by the CEO’s distorted views, sometimes lurking unseen and unsaid within an organisation’s subconscious.

But it isn’t just a simple case of power corrupts. Social psychologists have conducted research demonstrating that the way people construe their power affects how they use it. So, if leaders see their position as being responsible for others, rather than for their own personal attainment, power can have a very positive effect on the leader and on the organisation. Power in the right hands (or should we say, in the right mindset) can increase inclusion, eradicate corruption and discrimination and promote equality and human rights.

By contrast, business leaders who operate solely to maximise profits can inflict extensive reputational damage to their organisations when the results of their single-minded decision-making are uncovered. Often the cracks first appear in their global supply chains, where the margins can be squeezed and their deleterious social consequences kept far from view. For instance, workers from a factory in the notorious district of Mae Sot in Thailand recently brought forward a lawsuit against Tesco, claiming they are responsible for their appalling working conditions. Workers claim to have been subjected to unsanitary conditions, threatened by managers who had control of their immigration documents, and forced to work 24 hours once a month to fulfil large orders – all for as little as £3 a day.

With an increasing emphasis on responsibility in business, CEOs can no longer just be preoccupied by a company’s short-term financial performance. They must also make their companies socially and environmentally sustainable, protecting profitability in the long term. This far wider scope of performance for a responsible business, which stems from its social purpose and values that are rooted in the UN’s Global Goals, demands a different kind of leadership from the simple ‘leader–follower’ model of bygone times.

A more teams-based, participative notion of leadership is becoming mainstream, with power distributed across the company rather than held at the top. This allows CEOs to access a much broader skillset and utilise the diverse life experiences and viewpoints of the whole organisation to inform decisions. In this model, the theory is that leaders with the most appropriate traits will emerge as and when the situation arises, and the role of senior management is to facilitate this process by unlocking their employees’ leadership potential.

What gives this disruption and democratisation of traditional leadership structures in the workplace such potential is that it unleashes the extraordinary collective power of teams and crowds, which research has proved make better decisions, provide greater perspectives, and forecast more accurately than any leader or cabal of managers can hope to do on their own. Process-driven decision-making has also been shown to play a vital role in safeguarding against irresponsible or undesirable outcomes. Whether it’s a simple checklist, a series of set questions, or a more elaborate role-playing exercise, researchers have found that people improve their ability to achieve their goals by creating a set of conditional rules to follow.

The ever-widening pay-gap between employees and senior managers in many companies can be seen as symptomatic of leaders’ poor decision-making, a preoccupation with profit maximisation, and the amplifying effects of power on outdated and irresponsible business mindsets. Unions are currently appealing to the government to introduce formal pay ratio policies to curb inflated management pay packets to reflect the hardship and real terms pay cuts experienced by the majority of their staff. Much like the monitoring of the gender pay gap, keeping a tally on this pay ratio and holding companies to account can urge more responsible practice and create an alternative to the current race to the bottom.

The rewards for doing so are enormous. Companies with leaders that pursue such a responsible business agenda are not only more sustainable and future-proofed against huge social and environmental risks – they are also thriving. Besides, apart from a minority of ultra-rational, profit-maximising sociopaths, the vast majority of business leaders want to improve society in some way. But without the right responsible business strategies in place, even the most well-meaning and modestly paid of CEOs can find themselves on a slippery slope.

Read more:
Why High Pay Day matters

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