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Should there be a maximum wage?

Geoff Riley

29th July 2014

In this blog, Professor Simon Wren-Lewis from Oxford University bemoans the absence of debate over the notion of a maximum wage - with specific reference to the pay of senior executives.

Part of the contextual background is recent research from the High Pay Centre which finds that mean executive pay has rocketed from around 60 times the average worker to more than 170 times. Should there be a ceiling on the ratio of executive renumeration to the average pay of a firm's employees?

Just as some businesses and organisations have voluntarily introduced a living wage for employees at the foot of the pay ladder, according to the High Pay Centre "at John Lewis, the ratio is capped at 75:1. At TSB the gap between the chief executive and frontline staff is limited to 65:1."

In November 2013, voters in Switzerland decided against pay caps for executives by a majority of 65% to 35% - the maximum cap had been set at a low level - just 12 times the pay of junior employees.

However, in March 2013 Switzerland voted to give company shareholders a binding vote on managers’ pay and blocked golden handshakes and severance packages (so-called golden goodbyes).

Video from the High Pay Centre

More here on ballot initiatives in Switzerland:

Making executive pay work: The psychology of incentives

Geoff Riley

Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.

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