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Up, Down or No Change: What Happens When You Publish Salaries?

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In a blaze of publicity, the BBC has now published the pay of its top earners (you can see the full 16 page annexe here). Given the government is also committed to opening up corporate pay across the private sector, what actually happens when you publish salaries? Does the force of terrible headlines and an outraged public help reduce out of control pay packets? Or is the result, as the BBC Director General warned, really inflationary, driving up pay?

It is, of course, quite tricky to measure this sort of effect. This study of what happened when academic pay in Canada was made public concluded that publishing had no effect on pay levels (it also said academics weren’t paid enough. I digress). However, other evidence, such as this piece on opening up German executive pay, found a so-called ‘ratchet effect’ with disclosure increasing overall salaries by creating upward pressure from colleagues who demand to be paid better. One detailed study of CEO pay from the 1930s found openness had a generally upward effect:

 …disclosure did not achieve the intended effect of broadly lowering CEO compensation. If anything, and in spite of popular outrage against compensation practices, average CEO compensation increased…The evidence suggests an upward “ratcheting” effect whereby lower paid CEOs…experienced relative gains while well paid CEOs…were not penalized (Mas 2016, 1).

It concluded that only ‘the most salient and visible wages’ were ‘restrained’-so Gary Lineker and Chris Evans could get a wage cut but everyone else could get an increase. So the evidence actually says, at the very best, publishing has no effect on driving pay downwards and could well drive it upwards. The focus on levels of pay also obscures other important issues around performance and exactly how people are paid. Perhaps the bigger story is over the BBC gender pay gap and perhaps publication could help close a pretty scandalous discrepancy (blog on its way on this).

However, this evidence only takes us so far. Pay levels in the entertainment sector may work very differently from academia (insert entertainment related joke) or ‘normal’ CEOs. The BBC is rather a unique institution and any popular judgment could be bound up in views of the BBC itself, which the public appear to love. This could account for the fact a full quarter of those asked think the pay is OK and only 53% think it’s too high. But maybe public opinion about pay is quite nuanced. Even this poll about MPs’ salaries in 2013 found 60% of Britons think Members of Parliament get paid too much but 28% felt MPs were ‘paid about the right amount’ and a full 5% ‘think Members of Parliament are paid too little’.

The difficult of measuring anything is about what to measure it against-what’s the benchmark being used? Compared with the average UK salary of £ 28,200 then the amounts are eye-watering. However, the pay of almost anyone of note in the UK is compared with the Prime Minister, whether it’s Chris Evans, 9,000 public sector workers or 24 employees at Kent and Medway council. The problem for any comparison is that the last two Prime Ministers have, bless them, taken a 5% pay cut and a self-imposed pay freeze since 2010 and so Theresa May has to scrape along with a measly £150,402  instead of the £152, 532 she could have won. For any Prime Minister there is, remember, a free central London house in a very desirable location plus weekend ‘chillin’ pad and £64,000 pension. Luckily for Theresa May, a Prime Minister is entitled to a ‘pension equal to one half of their final salary when the leave that office, regardless of…length of service’.

So, as with many eye-catching transparency reforms, it’s not clear exactly what will happen in the weeks, months and years after publication. Certainly there is a principled reason publishing such data. But the evidence suggests that there’ll be no great BBC pay cut and it could push some pay higher. Ironically, it could be worth a few days of Twitter storm each year for a nice salary boost.

 

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What Happens When You Publish Salaries?

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The publication of what public officials earn was one of the big headline grabbing policies of the government’s Transparency Agenda back in 2010. From MPs’ expenses to the pay levels of senior Civil Servants, publication of who gets what is always tricky and sensitive- and often leads to ‘rich lists’ like this one. Now it may be the turn of high-earning academics to disclose what they earn, given this recent ICO decision in relation to Kings College London-see the background here.

The idea is that publication of salaries leads to the reigning in of large salaries, as public bodies cut back due to embarrassment or because others take action to reduce them. This also plays into a wider story, that looks set to be part of the General Election battle, about income inequality (you can see some interesting ONS statistics on earnings here).

As ever, the US is far ahead in the publishing of salaries. The Missouri Accountability Portal allows you to see all employees’ salaries at the push of a button. However, a study of public sector disclosure legislation in Canada (looking at academics) found no decrease in salaries after publication (and pointed out, bless them, that academics were paid less than they should be). Ontario’s so-called ‘Sunshine List’ of high earners made no difference either.

More interestingly, some research reveals publication of salaries actually has the opposite effect to that intended and is rather wonderfully counter-productive. This study of German CEOs found that when their salaries were published, other senior salaries went up as colleagues became aware of how much their colleagues earned and then pressured or negotiated for a pay rise. Rather than leading to cutting back or embarrassment, it led others to say ‘why aren’t I getting that much’?

The constant focus on ‘pay’ misses out a potentially more important discussion about performance-this study indicates some of the top US CEOs were getting better rewarded for poorer performances. Perhaps we could try and see if the Civil Servants paid more than the Prime Minister are doing a better job than he is? This points to a further difficulty that those in business do not have-given that neither MPs nor the Prime Minister have a formal job description, what constitutes a ‘good’ performance for a politician?