Tuesday, 18 August 2009

Payment for what

I'm not entirely convinced of the argument for imposing a national maximum wage. It's not an unattractive idea, and there is a certain symmetry about having both a minimum and a maximum; but I'm not sure what it would achieve or whether it's entirely practicable.

I'm more attracted by the idea of tying the maximum wage payable by any organisation to a multiple of the average wage in the same organisation, although there are still a number of problems with that approach as well. The difference, though, is that tying the maximum to the average creates a direct incentive to ensure that the average goes up - in short, the interests of the few at the top are related directly to the interests of the many lower down.

And that, in a sense, is what concerns me about the high level of wages paid to some individuals. It's not the amount as such, but the activities for which they are getting rewarded. Paying high rewards for actions which benefit society as a whole is one thing; paying high rewards for actions which maximise the short term benefit to the few at the direct expense of the long term benefit of the many is little short of rewarding a form of anti-social behaviour.

The problem with the culture of bonuses in our banks is that it has encouraged the 'wrong' type of activity and risk-taking. A small number of people have made fortunes as a result; but most of the rest of us have suffered from the destruction and collapse of the banking system. On balance, I'm more interested in ensuring that the rewards of the people at the top are tied into the long-term economic advantage of society as a whole, and that we have a suitably progressive tax regime on those rewards, than in setting artificial limits on them.


Sweet and Tender Hooligan said...

Although I supported the campaign, it was always about principle rather than instruments (the commission).

The whole notion of high pay has radically altered given the financial crisis; banks and financial institutions are hot beds of such wages, of which we the taxpayer owns or pretty much guarantees to continue in business.

That is the principle, the Government shouldn’t stand idly by and allow our money to be wasted on bonuses.

This of course is not wholly representative of what Compass are calling for. I don’t think maximum wages work, however, a discussion must be had about the rampant inequality within both private and public organisations.

Tax avoidance is also another issue in and around this – you would imagine there would far less mirth for these highly paid people if they didn’t undertake in tax avoidance on such a huge scale.

Spirit of BME said...

I think confusion reigns here.When governments interfer in the market -alas they allways do,distorions happen.Tips,service charge are all bonuses and are important to retain staff and boost take home pay -its all relative to the job.HMG intervention in the Banks has been a gold platted disaster,the only way we will see our money is give them bonuses and get 50% back in tax.Risk should be left to the Boards and much stronger shareholder powers.