Saturday 26 April 2014

Saturday, April 26, 2014 Posted by Jake 1 comment Labels: , , , , , , ,
Posted by Jake on Saturday, April 26, 2014 with 1 comment | Labels: , , , , , , ,

"the love of money is the root of all evil"
1 Timothy 6:10

This biblical quote means people aren't bad for nothing: to be really bad they need to be really well paid. Of course not all well paid people are evil, but that's the jist of it.

However, if someone tells you paying huge salaries is the only way to hold on to the best people who can make all of us more prosperous, tweet them this post. The statistics show they are wrong.

On the day between Good Friday and Easter Day in April 2014 the DailyMail reported:

“Barclays has been under fire for raising bonuses at its investment bank to £1.6billion, up 13 per cent, despite a 37 per cent fall in the division’s profits and regardless of vows to cut its pay bill.”

The bosses of Britain’s top companies pretend they are forced to pay humungous money to keep the best people. They claim that keeping these people, by paying them lots of money, makes all of us richer.
Is this actually true? Let's take a look at the statistics:

Compare the UK and German wages of the 99th percentile (the group earning 99th highest out of 100). Figures from the EU’s Eurostat, give the equivalised disposable (see below for definitions) household incomes. These show in 2012 (most recent figures available when writing this post) the German elite took home nearly 25% less than their UK equivalents. 
[Note the following definitions:

  • “Disposable Income”: income after direct taxes and state benefits are taken into account.
  • “Equivalised”: takes into account the size of the household. The household income is divided by a factor depending on the number of people in the household (1 (first adult) + 0.5 (each other adult) + 0.3 (each child)). For example, a household of 2 adults and 2 children, you would divide the total income by (1 + 0.5 + 0.3 + 0.3) = 2.1
  • So, for a 2 adults & 2 children household an equivalised income of Euros 70,000 = an actual income of 70,000 x 2.1 = Euros 147,000 ]

So do our more expensive bosses and investment bankers justify their pay by making us all richer than the Germans? No, the average disposable household income per person is higher in Germany than the UK:

Perhaps our highly paid bosses make our nation richer than Germany, even though that wealth doesn’t turn up in our pay packets? No, GDP per capita figures from the World Bank show while we were ahead during the banking boom we fell well behind during the inevitable banking bust:
Perhaps our highly paid bosses are having to work extra hard because the rest of us Brits are much lazier than the Germans? No,  figures from the ONS and Eurostat show this too is not true. The average British worker works 15% longer hours than your average German.
OK, let's try again. Perhaps it's because even though Brits work long hours they spend a lot of it doodling and dandling, and are jolly unproductive. Or possibly it's a problem of too much job protection - i.e. an inflexible labour market (too difficult to hire and fire). No, according to a report by the Boston Consulting Group (BCG) UK productivity-adjusted wage costs are way lower than Germany. And in terms of labour market flexibility we are streets ahead of the Germans right up there with the USA. (The BCG report aims to puff the USA, and so has no motive for exaggerating the allures of the UK).
The figures show that paying UK bosses much more than German bosses doesn't improve things for all of us. The figures show that exceedingly high pay benefits only the exceedingly highly paid.

However, the real problem is not the size of the huge salaries given to these people. 

The problem is the type of people who are inevitably and deliberately attracted by the huge salaries: people who measure themselves by money. Britons are soundly ripped off by banks, energy companies and others to generate profits to justify the pay of these people. A report by KPMG in 2014 states:

"Conduct failings and remediation of past mis-selling issues still dominate the banking agenda and costing a fortune. For 2013, it represents approximately 80 percent of the cumulative profits of the five banks" [The five banks referred to in the report are Barclays, HSBC, Lloyds Banking Group, RBS and Standard Chartered]

The problem is other people believe they too must measure themselves with money. So the incomes of the poorest stagnate to pay for the rises of the better off.

The problem is people who measure their worth by their money believe people with less money are worth less. We see this particularly in the corrosion of public services. If you don’t have the money to pay for your own lawyer, doctor, university education, security, transport, then that’s tough. This is the attitude that drives George Osborne's public spending cuts.

Office of Budget Responsibility

Excessive rewards are at the root of the rip-off culture. Banking scams ruining individuals and companies, energy scams leaving people freezing to death in the winter, and more. While you don't need to pay huge salaries to get the best people, you do have to pay humungous salaries to get people to ruthlessly rip off their fellow Britons!

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