The Sunday Times

June 6th, 2010

Fair pay can’t be defined, but still the snoops are after our wallets

There is no such thing as a just price. That is what my O-level history teacher said years ago, shocking me out of my schoolgirl boredom with this startling idea: I had, without thinking, assumed prices were fair, like sixpence for every Mars bar.

At some time in the early modern period, she said, people began to realise that the price is never absolutely right: it is a relative question of supply and demand and, of course, of political constraints and other circumstances. The price of something is what, in those circumstances, people can and will pay for it.

If so, the same must apply to pay; there is no such thing as just pay or fair pay. A worker may well be worthy of his hire, but what does that mean in practice? I was reminded of my late, great history teacher by all the agitated discussion at the moment of fair pay.

David Cameron said before the election that nobody in the public sector should earn more than 20 times what the lowest-paid employee was getting (which would mean a cap of about £200,000). And since the election he has set up a fair-pay review into public sector pay under Will Hutton. Last week there was outrage, in some quarters at least, at the government’s publication of top civil servants’ pay: 170 of them earn a great deal more than the prime minister (£142,500).

Somehow the revelation that John Fingleton, the chief executive of the Office of Fair Trading, takes home between £275,000 and £280,000, seemed to stick in most people’s throats, while those who resent the money being thrown at the Olympics had further cause for grievance in the £225,000 salary of Jeremy Beeton, head of the government’s Olympic executive.

Many people are already horrified at the vast salaries of top BBC executives; it is hard for even the most rugged of free marketeers to understand what Mark Thompson, the director-general, can possibly do to deserve £800,000 or so of public money, plus lavish perks.

Underlying all the anger and resentment, there seems to be a sense that there really is or ought to be a notion of fair pay, and that in the public sector at least it could be achieved. There are plenty of people on the left, politically, who think fair pay could and should be imposed on the private sector too. The pay ratios there, as everyone knows, are vastly greater than in the public sector.

In the FTSE 100 companies the ratio between the highest and lowest pay rates has more than doubled in the past decade to 81:1, while in middling companies it is 34:1. There is disquiet about pay levels in some charities: the trade union Unite has asked Hutton to investigate “glaring pay differentials” in the voluntary sector. Last year Unite publicly objected to the £391,000 annual salary paid to John Belcher, then chief executive at the residential care charity Anchor.

What I think people are really arguing about, unless they are unreconstructed Maoists, is not fair pay, but unfair pay — unjust pay, unjustified pay. It is impossible to come up with a workable notion of fair pay in a free society, but most of us have a lively idea of unfair pay. Starvation wages are unfair. And I cannot be alone in muttering to myself about unfairness at the news on Friday that Adam Crozier, chief executive of Royal Mail, was given a package of £2.4m in his final year with the company, of which £1.5m was a bonus: Royal Mail has not exactly distinguished itself under his command, to put it mildly.

In the new resentment about all this — first prompted by the shocking revelations about bankers’ so-called “compensation” — there are signs of a cultural shift.

A feeling is developing, perhaps in line with the growth in public nosiness, that we should all be told much more about other people’s affairs, including what they earn. The annoying buzz word for this is transparency. The new government is a true believer in transparency — its latest offering at the altar was the public posting on Friday of everything that government spends — the entire contents of the Treasury spending database.

But while transparency about public money and public servants is as welcome as it is proper, it might not be so welcome on all sides if the popular demand for information were to spread to the private sector. That might happen. One or two commentators have suggested that all our tax returns should be made public, as in Sweden. And without going that far, Polly Toynbee of The Guardian, weather vane of the old egalitarian left, hopes that at the least the proposed 20:1 pay ratio in the public sector will “fix a benchmark to nudge the private sector into reform”.

Revealing what private sector employees earn might well have some advantages. For most people — although clearly not for some of the greediest bankers — public exposure is a good corrective. Fat cats may be quite impervious to shame and to other people’s righteous anger, but most people aren’t. A new definition of fair pay might emerge; it is a salary you wouldn’t be embarrassed to have publicly known, either as employer or employee. Before long, under the prurient gaze of public opinion and the scrutiny of colleagues, an individual’s pay would be neither too high nor too low to justify — pay that is not obviously unfair.

All the same, whatever the benefits of revealing private sector pay in public, they are outweighed by the obvious disadvantage. It is an attack on privacy and on freedom.

People entrusted with public money cannot expect privacy or freedom — public scrutiny and state control is in the nature of their work. The same is not true of the private sector; there we are entitled to the freedom and the privacy, within the law and under the eyes of the tax man and the regulators, to make whatever commercial arrangements we like. If we are exploited, there are industrial tribunals.

In times of public resentment and anxiety, it is easy to forget that freedom and privacy are precious. They should not lightly be given up for the sake of something so elusive and intractable as the idea of fair pay. Jobs are not equal, the same job is not equally well done by all employees, employees are not equally good. When it comes to footballers and film stars, people are quite prepared to acknowledge that.

The private sector market in jobs is not entirely free, nor should it be — it’s constrained by social norms, mostly expressed in law — but it should be free of threats to the privacy and freedom of those who work in it, for what they see as pay that is not unfair.