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Executive Pay

This has been a problem for years, the standard response is make the directors pay open to the public, and the shareholders will enforce fairer pay scales on the company. The reality is this does not work or has very limited effect.

I believe the only thing that will work is to link the pay of the lowest paid employee to the pay of the highest paid employee.

This link should be something like the highest paid employee total income (salary plus bonus) from the company should not be greater than 30 times the lowest paid employee total income from the company. This should be legally binding multiple.

The top person could still get a large salary but only if the entire company pay structure allows it.

The idea is to give a proper framework to pay structures in the marketplace. Currently we have minimum wage legalisation but nothing to define the top end. An absolute limit for the top to mimic the minimum wage would be nonsense in the free market. However even the free market operates within limits and standards. Therefore, a top limit on salaries linked to the lowest paid employee would give a framework in which all employees could receive fair payment for their efforts in generating the companies profit and turnover.

Some people are concerned that with small companies, particularly single owner ones, that this would not work, but it would. The key is to distinguish clearly between salary/bonus income and shareholder dividend income. In these companies, the owner is not always the highest paid employee. The owner in these companies is a shareholder with a 100% share in the company. The money that the owner receives is neither salary nor bonus but dividend, therefore my proposed link between the lowest and highest salaries would not apply.

The link is on salaries including a bonus, not on shareholder dividends. This is because the aim of a statuary multiple between the lowest and highest salaries in any company is to make all companies have fair wage structures, with reasonable not excessive differentials in pay.

The aim of a pay structure should be fair pay for all, not excessive pay for those at the top.