Some thoughts on Rethink: build back fairer

Fairness, actually, is all around it seems this year. I know that my RAS (reticular activating system) is particularly alert to the term, but it isn’t just that: it’s clear that the Covid-19 crisis has brought many to the conclusion that fairness matters, and that focusing on fairness is more worthwhile than on the narrower numerical concern of inequality.

A key example is the apparent rebranding of the Rethink series on Radio 4 – which started with the Pope’s comments on poverty – to be Rethink Fairness. As host Amol Rajan explained, fairness was a term that just kept on coming up in the Rethink commentaries. This led to a series of five special discussions over last week, considering Rethink Fairness on: wealth, regions, education, health and generations.

The most striking part of the series was that both the education and health discussions focused less on disparities in education and health outcomes in themselves, and much more on those disparities as symptoms of broader unfairness in society. In each case, the suggested responses seemed more to do with addressing poverty and a lack of opportunity, particularly in some regions of the country, than with issues in education and health specifically. Both the health and education systems, it was noted, are too often asked to backfill for other failings.

Typical was this exhortation from the excellent Sammy Wright, vice principal of Southmoor Academy in Sunderland, and a member of Social Mobility Commission:

“We have to support people outside school, we have to have an adequate welfare safety net, we have to have services and we have to have people who can provide that whole wrap-around culture for struggling families.”

Similarly, “Good health is not about the health service, the health service is sorting that out when it’s gone wrong,” said the wonderful Dame Julie Moore, former nurse and recently retired chief executive of University Hospitals Birmingham NHS Foundation Trust. “The health service ends up sometimes picking up the price for the basic inequality in income, in housing, in circumstances.” She went further: “Sometimes the health service is there to fulfil a need that should not have arisen; we can’t expect the health service to solve all these problems.”

“Most of the difference that we see between children can actually be explained by their family background, their family income, factors outside of their school,” agreed Anna Vignoles, professor of education at the University of Cambridge. “It’s not surprising when you think about the influence of families and the amount of resource that they have, that they are making more of a difference than schools.”

Professor Sir Michael Marmot identified four mechanisms that in his view link our poor health pre-pandemic with our poor health during the pandemic. These four mechanisms are explored in detail in Build Back Fairer, last month’s report he co-authored on lessons to be learned from Covid-19 and reflecting on his decade of recommendations to the government for reform. Again, these are issues that go much broader than health as such:

  1. Quality of governance and political culture 
  2. Widening social and economic inequalities
  3. Investment in public services
  4. Health had stopped improving prior to the pandemic, which increased the risk of lethality during the pandemic

Vignoles put the call for action in similarly broad terms: “What we’re really facing pre-Covid, post-Covid, during Covid, is economic inequality in our society that also is mirrored in our education system and so if we’re serious about changing that we do have to work on the economic inequality that sits outside of schools first, or at least at the same time, because without tackling that we’re always going to face a problem in our education system.”

Furthermore though, it was clear that, just as many of the problems faced by the health and education systems arise from broader societal fairness issues, it is also true that addressing some of the health and education challenges – and investing more smartly in them – gives an opportunity to address future unfairness and create a nation in which we would all prefer to live. Getting these issues right can help with society as a whole, not just education and health in themselves. With so much focus on infrastructure spending, a key question is what infrastructure will actually matter for the future we want. There was some cynicism as to whether this should be physical transport links, and the suggestion that rather, it should be something smarter to suit the 21st century.

At its heart was a call not to see infrastructure just as concrete and steel. “View health as an investment in the nation’s infrastructure,” said Moore. “It’s a necessary part of our infrastructure, and it’s a really valuable investment on every front.”

Actually, the clearest articulation of the need for skills and investment in people and fairness rather than hard infrastructure came in the programme on Regions: “It’s not about faster trains between cities in the North of England, which would be used by richer people, it’s about trying to give people further down the ladder the skills that they need to get on in the world of work, and then also make that place a more attractive place to come and do business as well,” explained Paul Swinney, director of policy and research for the Centre for Cities.

This argument for a heavy investment in skills and training – and scope for retraining for those whose former jobs are no longer as valued – becomes more powerful when one considers the arguments of Harvard Professor Robert Putnam, of Bowling Alone fame. Putnam suggests that the rise of American public schooling in the progressive era (the years around 1900), which essentially provided a basic education for the entire population for the first time, readied the skills of its people and helped pump-prime the economy, providing the foundation for the economic success of the American century. 

If we aim to have a successful next century, we need to prepare our young people to succeed in it.

There were six areas of recommendations in the original Marmot Review, Fair Society, Healthy Lives, which again go far beyond a narrow understanding of health. They are a good basic set of ambitions for a nation to set itself:

  • Give every child the best start in life.
  • Enable all children, young people and adults to maximise their capabilities and have control over their lives.
  • Create fair employment and good work for all.
  • Ensure a healthy standard of living for all.
  • Create and develop healthy and sustainable places and communities.
  • Strengthen the role and impact of ill health prevention.

There seems no better message on which to end.

Rethink Fairness, Radio 4

Social Mobility Commission

Build Back Fairer: The Covid-19 Marmot Review, Michael Marmot, Jessica Allen, Peter Goldblatt, Eleanor Herd, Joana Morrison. The Health Foundation, December 2020

The Marmot review 2020 – the government must go further. Royal College of Physicians, February 2020

Health Equity in England: The Marmot Review 10 Years On, Michael Marmot, Jessica Allen, Tammy Boyce, Peter Goldblatt, Joana Morrison. Institute of Health Equity, February 2020

Fair Society, Healthy Lives, Michael Marmot, Jessica Allen, Peter Goldblatt, Tammy Boyce, Di McNeish, Mike Grady, Ilaria Geddes. Department of Health, February 2010

Twelfth Night, or whatever you want, CEO

It is Twelfth Night, the last of the Christmas festivities and by tradition when the decorations should be taken down. But Britain’s CEOs may be tempted to leave their decorations in place and risk the threat of the goblins that apparently invites, because today is also the day when top executive pay exceeds that of the average worker — named High Pay Day by my thoughtful friends at the High Pay Centre as a way of drawing attention to these differentials in pay between CEOs and the average full-time employee.

The bad news for FTSE 100 CEOs is that High Pay moment is a full hour later than last year as it now takes a CEO 34 hours of work to surpass average annual pay rather than the 33 hours it took last year. It is not that CEO pay has reduced; it has stayed relatively unchanged. Rather, average worker pay (perhaps counter-intuitively in these times of furloughing and Covid-driven unemployment) has risen a little. This pay ratio is around 120:1. High Pay moment this year is at around 5.30, about the time this blog is being posted.

Companies are now required to disclose their own internal pay ratios, that of CEO to the company’s average-paid worker in the UK (note ‘average-paid worker’, not ‘average worker’; no worker is average), and also a comparison of CEO pay to the lower and upper quartile worker in terms of pay. These ratios were analysed in another recent publication by the High Pay Centre, at whose launch late last month I had the privilege of being invited to speak. 

The results are striking, though the headline averages are lower than the 120:1 marked today:

For the FTSE 100, the median CEO/median ratio is 73:1,
and the median CEO/lower quartile ratio is 109:1 

For the FTSE 350 as a whole, the median CEO/median employee pay ratio is 53:1,
and the median CEO/lower quartile employee ratio is 71:1

These averages mask some remarkable variation, with the highest ratio, 2605:1, being that at Ocado, whose Tim Steiner enjoyed (and one assumes continues to enjoy) an extraordinary one-off level of pay of £58 million. Another seven companies saw CEO:median paid employee ratios over 200:1 (JD Sports, Tesco, Watches of Switzerland, GVC Holdings, Morrisons, CRH and WH Smith). The variation is shown a little in this chart:

It is clear from this that the biggest driver of the largest ratios is less the CEO’s individual pay (setting aside the unusual case of Mr Steiner) and more the pay of the workforce. That is still starker when the ratios in comparison with lower quartile workers by pay are considered. At Ocado, this ratio is 2820:1, at BP it is 543:1 and at Tesco it is 355:1. There are some sectors that are disproportionately represented among those with high ratios and notably low levels of pay — particularly retail and hospitality [Note that while AB Foods is classified as a ‘consumer goods’ company, its lower quartile paid workers are likely to be employed at its Primark subsidiary]:

In 11 cases, the High Pay Centre notes, the revealed lower quartile thresholds are below what would be earned from a 35-hour week paid at the £9.30 real living wage as calculated by the Living Wage Foundation (note, this is not the statutory minimum wage – no allegation of illegality is being made). We should note that in part these sectors being notably lower paid is an output of long-standing sexism in pay: retail and hospitality have traditionally been seen predominantly as women’s work and so have never been paid as well as other sectors. That is a clear unfairness.

And it is important to note that, as low as the pay revealed by these lower quartile figures is, fully a quarter of the workforces of each company is paid less.

When we focus on the lowest paid, it’s important to note as the High Pay Centre does that this data includes only those people that companies actually employ. HPC argues that outsourced workers should be included in pay ratios; I’m not convinced that this is practical, but I think it is realistic to ask for greater clarity of disclosure in business model reporting of all the additional workforce on which the company is dependent that are not necessarily staff members. More general enhancements to workforce discussions in business model reporting would also be helpful because these pay ratio disclosures include only UK workers. For some companies that will cover the whole business, while for others it is only a very small portion. Business model reporting can be made much more transparent and informative, and these sorts of disclosures would help towards a better understanding of how each company sits within its broader economic environment.

The High Pay Centre also calls for a number of ways in which the accountability of companies, and particularly remuneration committees, for pay decisions — including outcomes like pay ratios — should be enhanced. Personally, I have long said that there should be greater formal accountability of remuneration committees to staff members, in particular a formal presentation annually by the remuneration chair to employee representatives. I think that could prove salutary, and be a strong route for understanding staff perspectives that could then be fed into discussions in the boardroom. It might also help alleviate some of the ongoing suspicions that CEOs and other executives have too much influence on their own pay.

CEOs may be tempted to leave their decorations up. I suspect the rest of us will be moved to take ours down.

See also: Resentment and rents: fairness in executive pay

Fairness in the pay ratio

High Pay Day 2021, High Pay Centre

Pay Ratios and the FTSE 350: An analysis of the first disclosures, High Pay Centre, December 2020

Living Wage Foundation