To each according to his contribution?

As the ratio between the earnings of the highest and lowest paid continues to grow, voices of dissent are increasingly strident. 

The average ratio of CEO-to-employee pay has risen from 47 to 128 over the past 10 years. There are some striking outliers.

Reckitt Benckiser’s CEO is paid 1,375 times as much as Reckitt’s average worker; the CEO of Tesco is paid 900 times his company’s average wage.

John Pierpont Morgan, founder of JP Morgan, once said that no-one at the top of a company should earn more than 20 times those at the bottom. Among FTSE-100 companies last year, only two chief executives met Morgan's test.

What would be fair? In principle, perceptions of fairness and legitimate differentiation of earnings might relate to three factors: personal risk, labour market forces or contribution.

The idea of a calculus relating reward to risk may work in the capital markets but it’s just silly in the employment markets when the only material risk a chief executive faces is the loss of the very earnings he cannot justify.

The labour market arguments have some force in general terms but are probably overplayed in the boardroom.

The idea of contribution is currently too hazy to be useful.

Yet it is the notion of contribution that lies at the root of feelings of fairness, of equity and of the legitimacy of differences in reward.

"To each according to his contribution" is a principle considered to be a defining feature of socialism by its advocates. It refers to an arrangement whereby individuals receive compensation based on the amount they contribute to the total output of society (also known as the "social product") in the form of effort, labour and productivity.

Web-based technology would permit very large numbers of people to be engaged in setting up the parameters of an evaluation framework, and in subsequently rating jobs.  The democracy of large numbers would give social weight to the outcomes. 

In fact this very idea of a “national job evaluation scheme” was mooted in the 1970’s and 80’s, but the technology of the time did not allow the participation of sufficient numbers to give the results sufficient political clout. Perhaps its time has now come?

Get Mike Thomas's thoughts on how to crack the remuneration conundrum