Friday 27 January 2012

A £37,000 pay cut

Well, Mr Hester, Chief Executive of RBS, is not to get his £1m bonus after all: it has been cut to £963,000. For most of us a cut of £37,000 would be pretty serious. Indeed for most of us £37,000 is considerably more than we actually earn. But for Mr Hester it is a flea-bite.

Mr Hester is said to be a very effective Chief Executive, and that may will be so: I have no means of judging. However, some of the "turn round" of RBS has been achieved by cutting thousands of jobs. If RBS was overstaffed and employees were just filling in their time by passing memos to each other, as per Parkinson's Law, well and good. But if they were doing useful work and their absence places an unacceptable burden on those who remain, or more functions requiring personal contact or expertise are passed to impersonal automated systems, that is unacceptable.

Given that the average wage is around £26,000 that £963,000 could have preserved the jobs of 37 RBS employees on average pay. Some enterprising journalist could pick out 37 RBS workers who have lost their jobs to pay Mr Hester's bonus and chart their experiences over the next few years as they try to find alternative work in a system where there are five unemployed people for every vacancy. Then we can compare their collective experience with whatever pleasure Mr Hester gets form his extra £963,000.

We also need to remember that the £963,000 is on top of Mr Hester's "normal" annual pay of £1.2 million - equivalent to the "compensation" of a further 46 employees on average wages. So altogether the Chief Executive, effectively a public servant, is paid 83 times more than the average employee in his, or rather our, organisation.

Most of us accept the need to pay differentials to reward different levels of ability and responsibility, but this ratio has gone well beyond what is necessary, fair or just, or even sustainable in a cohesive society which claims that we are " all in this together." Plato thought a ratio of 4:1 would be ample, but he probably didn't include the salves. My own view is that multiples of up to ten times the minimum wage would be sufficient to incentives and justly reward all sorts and conditions of men and women.


  1. In a Guardian article yesterday (30/01/12) Ken Livingstone claimed that: "When I was leader of the GLC, by the time I had been in control for three years, the difference in pay between the cleaner and the director general was a four to one ratio."

    So the "Platonic ratio" is not an oddity of ancient history, but has been in operation within living memory.

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