Let them eat crumbs: Growing wage inequality is bad for both workers and businesses

Companies in Ireland should disclose the ratio of chief executive pay to median employee pay as US and UK groups doThere is a need for greater transparency on how executive pay compares with that of ordinary workers. Illustration: iStock Let them eat ... crumbs? Workers are feeling the pinch as the cost of groceries, energy and other household bills increases. The Government’s budget will reduce some of the pain, but we need to look elsewhere to understand why we are having to stretch our euro further and further.We are working harder than ever and the data shows workers have never been so productive, but our wages and salaries haven’t matched our efforts for decades. Worker productivity and earnings were thought to move in tandem. But the gap between worker productivity and earnings versus what chief executive officers (CEOs), shareholders and other owners of capital get through profits, dividends and interest has widened significantly.In Ireland, we know that Peter Jackson of Paddy Power parent Flutter Entertainment was paid $19.7 million (€17.2 million) last year – 351 times the median $56,101 wage earned across his group’s staff. Tony Smurfit of Smurfit Westrock earned $16.4 million – 271 times his employees’ median. READ MOREIn the United States overall, the average US CEO earned 21 times what the median worker did back in 1965. In 2023, the multiple had grown to 290 times. Do extreme ratios like this reflect an extraordinary increase in CEO productivity or are CEOs capturing the wealth created by workers’ productivity gains?We know these ratios only because companies listed on either US or British stock exchanges must provide the data. CEO-to-employee pay ratio disclosures were introduced to allow investors a way to evaluate and vote on executive pay and a window into other hard-to-measure indicators of a company’s long-term health, such as the effectiveness of its corporate governance. Ireland has no such rules but it should introduce them as soon as possible.A crummy dealLast week, I compared the pay of Ireland’s 19 highest-earning CEOS against the gender pay and promotions gap. Women in the middle are not doing well compared to the top male bosses or even versus their male colleagues.But growing gaps are also revealed between all workers’ productivity and how they are rewarded over time. A large gap between CEO pay and the median workers’ wage compounds inequality year on year, meaning workers (and women especially) keep falling behind financially. When rewards at the top grow by 9.6 per cent a year and the middle moves barely above inflation, the distance between them accelerates over time. And the taxation system often adds insult to workers’ injury as the wealth at the top is generally taxed more lightly than the wages of those beneath it. Let’s start with the most obscene example. Elon Musk’s proposed $158 billion Tesla pay package compares to median staff earnings of just $62,786. Musk’s package is valued at over 2.5 million times what a median worker makes at his company.The board clearly thinks he’s worth it. And of course the US government will benefit from a windfall through the tax it collects on Tesla’s $12.58 billion income in 2025. Win-win, right? Nope.Elon Musk's pay is a cause for concern. Photograph: Mark Schiefelbein/AP “Over the past three years, Tesla paid just 0.4 per cent of its US profits in federal income taxes, which is another way of saying the company reported an effective federal income tax rate of 0.4 per cent. This is a tiny fraction of the 21 per cent tax rate profitable corporations are supposed to pay under the law,” says the Institute on Taxation and Economic Policy, a non-profit, non-partisan tax policy organisation based in Washington.The wage and taxation gap trends are so extreme that even the wealthiest and most successful CEOs and founders know something has to give.Warren Buffett, the recently retired Berkshire Hathaway chief, spent decades arguing that people like him are undertaxed, famously observing of his secretary that “Debbie works just as hard as I do and she pays twice the rate I pay”. He urged Washington to stop coddling the super-rich. Berkshire’s $26.8 billion tax bill for 2024, the largest payment ever made to the US government at that point, was still not enough, he believed.Ireland doesn’t have the US’s number of billionaires – we only have 11 – but they are collectively wealthier than 3.46 million people in the State, according to Oxfam Ireland. Our taxation system is considered to be more equitable and progressive than the US system and the Government uses capital gains and capital acquisitions tax (both at 33 per cent) and local property taxes to move wealth into the public finances. Even so, the gap between Ireland’s top-paid CEOs and their workers is widening. It’s a worrying international trend.David McCourt, the Irish-American billionaire behind the National Broadband Plan, told the Irish Independent two weeks ago that from the 1970s onward capital came to be valued above people. Companies paid less tax and booked more profit; bosses gave less to their workers and even their communities. David McCourt of National Broadband Ireland. Photograph: Julien Behal He thinks big business should share a little. They do not have to take every penny out in profit, he said.The Financial Times recognises the dangerous mismatch between workers’ effort and their rewards. Since 1947, we’re five times more productive but real hourly compensation is only about three times greater, economic columnist and data journalist Joel Suss wrote on Monday. “Productivity growth is still all that matters for economic wellbeing in the long run; it just needs to be shared around more,” he said. When we see a transfer from labour (workers’ wages) to capital (executives, investors and owners), we also see rising inequality and social unrest. Wealth becomes more concentrated among business owners and investors. Workers’ pay stagnates even when the economy grows. Higher corporate profits mean companies have more money to invest in machines, technology or shareholder payouts. AI may make things even worse for workers if companies use it to replace or reduce human workers. Suss thinks we need a new social contract for the AI era. If the wage gap trend accelerates, he says “this will only lead us to more fragile economies and more fractured societies”. Bad for businessMany highly paid CEOs and founders deserve every cent they get. They’ve taken risks – financial, economic and personal – to build a business from nothing. That endeavour should be rewarded but to what extent? And, do massive pay packets serve the best interests of a company and its shareholders?Extensive academic research over many years shows that CEOs who are highly rewarded may behave differently. They might take greater risks, make bigger bets and attempt more mergers and acquisitions to justify larger pay cheques. But higher levels of risk-taking don’t always work out and this can have a direct impact on jobs and growth.Stock exchange regulators and governments know this too. UK and US markets introduced median worker pay disclosures in an effort to improve corporate transparency, try to curb excessive executive compensation and give shareholders a clearer picture of internal income inequality. So far, it’s working. Research shows transparency may constrain CEOs’ risk-taking incentives. [ Retail sales show no signs of strong improvement as fuel continues to pinch consumersOpens in new window ]In Ireland, boards produce long defences of excessive executive pay and not a single line about the number representing the worker in the middle. The fix is easy. Companies in Ireland should disclose the ratio of chief executive pay to median employee pay, as their peers in London and New York do. The data exists; payroll systems can produce it in an afternoon. The only question is: does anyone understand why it’s so urgent that we know? Ask Marie Antoinette.Margaret E Ward is chief executive of Clear Eye, a leadership consultancy. IN THIS SECTION