I really like a Twitter trend #ShoterHR. The idea is to write HR policy in 140 characters or less. Below are some of the best examples together with a number of my own contributions.

This exercise also has a serious point. It would be a major step forward if HR policy could be written in clear and easy to understand English.

Here is a mixture of the funny and the serious.

Death benefit; You die, we pay.

Don’t sack pregnant women, ever. @ http://twitter.com/ljanstis

Deferred bonus: no bread today, maybe jam tomorrow.

Restrictive covenants: Don’t nick our clients, staff or supplies. Or, our price list. http://twitter.com/daniel_barnett

Fire prevention policy: Don’t light fires in the office.

Health and safety: Oh for goodness sake, just be careful won’t you! http://twitter.com/DamsonHR

Retirement age policy: Holding back the years.

Mobile phone policy: Switch it off, http://twitter.com/imhrplus

Personal hygiene policy: No no to BO

Equal Opportunities Policy: Treat everyone fairly and the same, Always. http://twitter.com/JacksonT0ny

Drug abuse policy: no sniffing, no injecting,

Relationships at work policy: Don’t screw the crew. @davidmorganllb

Employee Share scheme: Buy our discounted shares. We prosper, you prosper.

Dress code: you are not clubbing, gardening or at the beach. NB. For lawyers, or going to a funeral. http://twitter.com/rarfarr

IT Support policy: Turn it off, then turn it on.

H R Policy: Be sensible (To replace all policies). @HR_Gem

HR Job descriptions:
HR Manager: Gandhi + Jedi Master
Reward Manager: Gandalf + Dr Who
Training Manager; Peter Pan + Seb Coe

Compromise Agreement: It’s not that we don’t like you, but here is some money, now go away. (Adapted from @dds180)
Clear Desk Policy: Nothing on top after working hours.

Sabbatical leave policy: we will not pay for your mid-life crisis. Enjoy Goa, See you in six months. @beth_Marie

Cycle to work policy: On yer Bike. @davidmorganllb

Industrial Action: Worker unpaid inaction.

I have tried to credit the originator – but it is not always clear who originally wrote these. If you know better let me know. Those not attributed are mine.

If you have better #shorterhr please add in the comments.


What are Pension Funds’ Greatest Challenges in 2013?

Excellent blog on Pension Fund challenges in 2013

Robert Gardner

Pensions has always been a tricky business. But perhaps never more so than in 2013. The regulation changes of the early 2000’s rewrote the rulebook for those running pension funds, and a survey of the key challenges of that time would have produced, it seems logical to assume, a set of concerns about changing regulations, accounting issues that accompany them, and governance. Today, the landscape has changed. Pension funds, on the whole, got to grips with those systemic changes in pension infrastructure only to be faced, in 2008 onwards, with the greatest seismic economic shift of our lifetimes. It wasn’t just that markets plummeted and equities didn’t turn out to be the knight in shining armour pension funds had hoped and planned they would be; it was that the very foundations of modern economic markets changed. Everything we thought we knew about risk, return and the relationship between the two…

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Supporting the UK Reserve forces – a CSR win-win

The UK reserve forces (formally the TA), play a key role in supporting the country in times of emergency.  If you employ a reservist they will be getting leadership, professional and technical skills training to exacting military standards that easily transfer into increased performance in the workplace.  Furthermore at a time of unprecedented and unwarranted attacks on business by politicians and the media; supporting UK Reserves is a high profile and media friendly way of showing your organisation’s unquestionable CRS credentials.   Internally, supporting reservists show a commitment to your workforce both for personal development and commitment to a wider society as part of the corporate mission.  A win win for both the employer and the employee.  For further details see http://www.sabre.mod.uk/ or contact Mark Richard, SaBRE Campaign Director at gl-m.richards@gl.rfca.mod.ukImage

2013 – a crowd pleasing year?

In December “A box of Birds” by Charles Fernyhough was published.  I was particularly interested as I was one of about three hundred people who had “crowd funded” the publication of this book.  Fernyhough got his book published and I got a signed first edition.  I was speculating if this new economic model could be extended to Reward?  Executive remuneration is supposed to be crowd decided by shareholders via the Remuneration Committee.  It is a model that does not currently seem to work as well as it could; although this has far more to do with the increasing number of stakeholders, such as shareholder advocacy groups and politicians who all feel they should be part of the crowd sourced decision making.  It may be a way forward, but there will be a lot of pain before the model works in a way that is less combative and better at producing “good” outcomes.

The growth of social media, social networks and crowd sourcing are all going to impact on reward, often in an indirect way.  Not being part of strong, extensive, international social networks will leave us marginalised bit players in 2013.  Reward professionals need to be leading the way as opinion formers in our sphere and the best way to do that is through the propagation of good practice through social media conduits.  Combinations of existing and new technology are going to take us by surprise in 2013; we must work hard to be in the vanguard of change rather than following up in the rear echelon.

Many of the other issues facing us in 2013 are spawned by the poor economy both in the UK and worldwide.    The platoons of economists tend to skirmish over the fate of inflation in 2013; but if I was a betting man I would be look for odds on an outbreak of inflation.  This gives special challenges to reward, given low growth and even lower budgets how can we marshal our pay resources to give the biggest bang for our buck? This is at a time when real living standards have been in retreat for the better part of five years, if not longer.  Non-cash rewards and recognition activity continue to grow in importance in such a milieu.  However, addressing the core issue of falling living standards is more than just an economic question; failure risks further collateral damage to our social cohesion.

In 2013 the differences between rich and poor will again be greater and more visible.  We have already seen the outward manifestation of the damage to social capital by way of riots on our streets, greatly reduced political legitimacy by way of very low turnouts, for example in the election for police commissioners and greater apathy if not hostility towards politicians; seeing Osborn being booed at the Olympics is a demonstration of the depth of ill feeling.    I still remember studying sociology in the 1980’s – Emilie Durkheim talked of anomie, a social condition characterized by instability, the breakdown of social norms, institutional disorganization, and a divorce between socially valid goals and available means for achieving them.  We in Reward must look to reflect societal concerns as we scan the battlefield for threats if we are to add value to the current debates.

Issues around high pay and executive reward will continue to drive our and the business media agenda this year.  We are seeing attempts to make reward as much about how results are achieved as what those results are.  However, arguably not only is it too little too late (at least for investment banking pay) but it does not address the issue of “fairness” in pay; be it from the viewpoint of the shareholder, who provides the capital, or the employee who provides the effort.  Least of all it does not address the media sniping and politics of envy.  Increased transparency will be a loud demand on executive pay in 2013; although as US reporting has shown more does not mean better.  Executive pay is too complex and subject to too many variables to be reduced to one or two easy numbers.  (Vince Cable, please take note).  One of my New Year wishes is that we could find a way to define what really is meant by “fair” pay.

Another challenge facing us due to the economy is that of the apparent changes in employment structures.  I, like many others, am seeking a full-time permanent role.  But, organisations responses to the current depressed labour market are, understandably, to regroup by using more temporary and contract roles.  Pay levels in the market have been depressed.  With, on average, seventeen people in the UK chasing every vacancy, new roles are being advertised with lower levels of starting pay.  Bath University has produced some excellent work on organisational engagement and I find it interesting to ponder how companies encourage engagement while downsizing their permanent employees   and employing far more casual labour in the fight for cost advantage.  The Bath study showed a strong correlation between commitment levels and long term organisational economic success.  This competitive advantage is in retreat when faced with the economics of 2013

I do hope that 2013 will be better than I expect, many of the issues discussed above can be seen as opportunities and challenges where innovative practice and creative solutions in UK and global reward will allow us to bring light to the darkness of incipient anomie.  I wish all of you a happy and prosperous 2013.

Complexities of reward

My wife and I like to work together to solve the Telegraph quick crossword on my ipad, we are not good enough yet to attempt the cryptic crossword. We like crosswords as they test our knowledge but also because you can go off down the wrong path very easily and not realise it until that last clue where you know the answer but it does not fit in the grid because of an earlier wrong answer.
Reward is like this in many ways. It is moving from being the quick puzzle to being a very cryptic crossword where mistakes can be made and not discovered until a long way in to the process or product design. It has become apparent to me that Reward is at a crossroads, in the middle of a maze. There are now so many stakeholders involved, employees, management, compensation committees, regulators shareholder advocacy groups, trade unions and politicians it is difficult to know which way to turn. They all have different viewpoints, different agendas different understandings and different needs.
There is a lack of common ground, common language and common definitions. What, after all is high pay or low pay for that matter? Are we looking at absolute or relative levels of pay? Are we comparing with some mystery average or mean? As a result what looks fair and reasonable to a Compensation Committee looks like highway robbery to a trade union. The area is fought with paradox. We can see these paradoxes at work in the controversy over BBC pay for talent. Because the BBC is funded by licence payers there is the application of a different standard for, say Jeremy Clarkson, than there would be if he worked for a privately funded broadcaster. Yet the labour market in which he operates is exactly the same. Is he supposed to be happy to earn less because he works for the BBC? Would we be happy to be paid less because we work in the public sector, and judging by the latest earning statistics for those in the public sector vs. the private sector the answer to that is a clear no.
What we and others are paid is very important; yet there is no overarching theory on pay and reward. There are attempts such as the excellent tournament theory or expectation theory for example. Labour market economists will talk about supply and demand – but that is not the entire story. Behavioural economics are increasing playing a part in pay theory. Yet, like Steven Hawkins attempt at a grand unifying theory we are really nowhere near achieving a consensus on what is fair pay.
So reward specialist have the issue of not only undertaking complex work on pensions, share options, taxation, total reward, flexible benefits, accounting standards, compensation disclosure rules and the like but we have to be able to justify our recommendations before the court of public opinion, political scrutiny and regulatory microscopes. Often with the benefit of 20 20 hindsight.
There are two concerns around the complexity. The first is that there are very few individuals who can move between the technically complex and the “public relations” facets of current reward activities. Second, only the larger companies have the resources and time to fully fulfil the requirements, demands and disclosures needed by the stakeholders, Reward normally sits in HR, yet it has strong interfaces with Finance, investor relation, Risk and Compliance, to name but a few.
Perhaps a new breed of expert will appear phoenix like from the current ashes of the shareholder spring; but somehow I think we will just muddle along as always, relying on expensive consultancies

Banking Standards Inquiry

I had coffee with a former investment banking colleague last week. She complained to me that she had lost a lucrative deal because by the time she had got the compliance department to agree to the deal another bank had beaten her to the sale. I thought about this discussion when I read the CIPD’s excellent submission to the Parliamentary Commission on Banking Standards.
The CIPD submission makes a cogent argument that culture change is a necessity and standards of behaviour are key in tacking the current perceived malaise in banking across the globe. The problem from my viewpoint is that the nature of financial systems makes culture change in banking almost impossible. The reality of what happens “on the ground” makes change very difficult and a very long term project.
The arguments supporting this thesis are first that the entire financial services structure is built on the profit imperative. Investors giving money to fund managers expect above average returns. The fund managers and shareholders expect above average returns to reward their investment. That puts pressure on Boards to make above average profit; this pressure is then passed down the line to the coal face where revenue earning staff are under great pressure to produce profits both to keep their jobs and to make a bonus. It is difficult to see a situation where fund managers and shareholders say “don’t make me so much money” the obvious result of reducing risk.
The second argument, which is also reflected in the CIPD submission, is the issue of the labour market. High earning revenue makers such as traders as not a common species. The best beasts in the financial services jungle require high levels of self-belief, education, skills and intuition. Those with this skill set are far ahead of the herd in achievement of revenue generation and thus ruthlessly hunted by banks seeking to boost profits. The way this hunting is carried out is by financial incentive supported by a “self-reinforcing monolithic working culture”. Status is measured first by employer and second by earnings. So working for Goldman Sacs is seen as being of higher status than working for UBS for example. But money is the big differentiator; – bigger bonuses = higher status.
Proof for the above assertions can be seen just by reading the newspapers. Despite years of the banking crisis we are almost weekly hit by stories of alleged wrongdoing from the top of organisations – the recent disclosures around alleged LIBOR fixing; to the alleged wrongdoings of individual traders. It could be argued that due to the factors above, nothing very much has really changed in the culture and behaviours of those who lead, manage and work at the coal face of our financial services.
The CIPD submission to the Banking Standards Inquiry is an excellent document that highlights the key issues. The unfortunate truth is that diagnosing the ills is unlikely to lead to any early cure. An impression not aided by the body holding the inquiry being portrayed by the media as lacking the very culture and behaviour that it seeks to impose (if that were possible) on the banking sector. Pots and kettles anyone?

Corporate pay disclosure: The breakfast cereal debate

I was in my local Sainsbury’s doing some food shopping.  Conscious of health advice I thought I would look at the label on my breakfast cereal.  The label listed the contents as:

  • Wholegrain Wheat
  • Malted Barley Extract
  • Sugar
  • Salt
  • Niacin
  • Iron
  • Riboflavin
  • Thiamine
  • Folic Acid

Included in the informative label were the “typical average value per serving” and the “Guideline Daily Amount”.  All excellent information – but what did it actually mean?  Should I be comparing my chosen cereal with others to ensure good value with the right level of vitamins and minerals?  Should I perhaps compare my breakfast cereal with porridge, similar, but not quite the same?

A similar issue occurs over disclosure in corporate pay.  Compensation Committees and shareholders are bombarded with guidelines on what should be their “exposé” on executive pay.  In the US there is a corporate filing called the Compensation Analysis and Discussion (CD&A) which is a mandatory pay disclosure requirement.  If we look at the recent filing by Apple Inc. at http://files.shareholder.com/downloads/AAPL/1719223512x0x531628/b6ec469d-aff8-4eef-9077-1defc2258f6b/2012_Proxy.pdf we see the following disclosures for senior executives;

  • Base salaries
  • Annual performance based cash bonuses
    • Performance criteria
    • Performance Goals
    • Pay out structure
    • Long term equity awards
      • Stock awards
      • Option awards
      • Changes in pension value
      • Estimated future pay outs under non-equity awards
      • Estimated future pay outs under Equity incentive awards
      • Other stock and option awards
      • Fair value of stock and option awards (and good luck with your Black-Scholes calculations).

And while Apple Inc. does not use the following for their executives they could also report on:

  • Employment agreements;
  • Severance arrangements;
  • Cash payments in connection with a change in control of the Company;
  • Tax reimbursements;
  • Supplemental executive retirement benefits.
  • Change of control benefits
  • Prerequisites

I could go on….. (For a fuller discussion on disclosure regulations see http://crossborder.practicallaw.com/4-101-7960 )

Like my breakfast cereal contents, it is all exciting stuff – but what does it mean?

Who cares?

The disclosure requirements in the US and the UK were conceived to help stakeholders judge if pay is “fair” and not “excessive” (No definition of “fair” or “excessive”, like an elephant, you are supposed to know it when you see it).  The Association of British Insures guidelines (http://www.ivis.co.uk/ExecutiveRemuneration.aspx) state that ABI members seek to ensure that: “remuneration practices and policies of companies they invest in are aligned with shareholder interests and promote sustainable value creation.”  No one would argue with those good intentions.

How many institutional shareholders – who hold the majority of shares in the US and the UK, have the time or expertise to undertake the analysis that I would have to make with my breakfast cereal?   Is the remuneration good value for shareholders?  How does it compare with other similar (or dissimilar) organizations?  Multiply that by 140, the average numbers of stocks held by US mutual funds, and you have a complete supermarket of breakfast cereal content to deconstruct.

Increasingly institutional shareholders are leaving it to shareholder advocacy groups such as Institutional Shareholder Services (ISS) in the USA and the ABI in the UK to flag up deviations from what they consider best practice.

Unintended consequences

The reliance on these groups leads to a number of unintended consequences:

  • A “tick-box” mentality to disclosure
  • Compensation Committees being frightened into designing their pay plans to fit the guidelines rather than be fit for purpose for their organisation for fear of a shareholder advocacy group recommending a “no” vote on their “say on pay” vote or similar.
  • Executives not wanting to be promoted to senior executive positions because of the disclosure and the restrictions on the nature of their pay structure.
  • Greater homogeneity between organisational compensation approaches and levels of remuneration.
  • Senior executives seeing their pay becoming much more contingent on factors outside their control – such as share price movement (for absolute and relative TSR measures for example); what behaviours will this generate?
  • Conflict of interests by advocacy groups who also offer corporate services
  • Compensation advisors becoming more expensive, as risk adverse as Compensation Committees and giving similar advice as all their competitors to maintain compliance.
  • Even greater labour market distortions at executive level.
  • A mismatch between the time horizons of the remuneration structure and the different return horizon of investors.
  • Shareholders being placed in the position of micromanaging reward policy.
  • Investors (and particularly political pressure groups) using a no vote on remuneration to “punish” company directors on or draw attention to, issues unrelated to reward.

Actual consequences – to date

The US has one of the most stringent pay disclosure regimes, yet it has the highest executive pay in the world and, arguably, the greatest inequality between employees.

The excellent KPMG guide to Directors remuneration  www.kpmg.com/uk/en/issuesandinsights/articlespublications/pages/kpmgs-guide-to-directors-remuneration-2011.aspx  points out that there has been a fall of 18.6% between 2010 and 2011 in the number of remuneration report shareholder resolutions with a greater than 20% oppose vote in the UK FTSE All share.  Thus, it is unclear if greater pay disclosure is a panacea against corporate excess or simply a kneejerk political response to public concerns – much fury signifying nothing.


I go on buying my breakfast cereal because I like it; I guess institutional shareholders are going to do much the same thing with the companies they choose to take as investments – regardless of the remuneration disclosures.


Passing through the eye of a needle.

But I am worth a half million pound bonus

I was talking to an investment banker, Helen, last week.  She was complaining about the attacks on the high paid in the media and politicians.  Yes, she had got paid a bonus of half a million pounds but had made over eight million revenue and had also paid two hundred and sixty thousand pounds of the bonus in tax.

Helen told me she had three degrees, spoke four foreign languages and was taking additional FSA exams in her limited spare time. She worked, about; sixty hours a week, seldom took holiday and had no time for relationships.  Helen told me that she was only as good as her last deal and that she was effectively performance managed on an hourly basis as she traded her book of derivatives.

This set me to thinking about who were the high earners and why did they get paid large amounts.  I was surprised at the answers.  High pay is partly a function of a highly segregated labour market but mostly a function of the family and social environment in to which we were born.  So the solution to income inequality is not to further tax or attack the high paid; but to give our children the ability and skills to enter and be successful in the segmented labour market.

Do you know someone high paid?

The UK Government considers that if you earn a hundred and fifty thousand pounds a year or more you are in the top 1% of tax payers.  In the UK those 1% take about fourteen per cent of all income (http://cep.lse.ac.uk/conference_papers/04_11_2011/TopPayUK_slides.pdf)  and pay about 27%  of all income tax. (http://www.bbc.co.uk/news/magazine-15822595).  So who are these high earners?  Well, a list by the Guardian (http://www.guardian.co.uk/money/2010/dec/18/uks-best-paid-jobs) suggest the following jobs are high paid:

  • Heads of large organisations
  • GP’s
  • Aircraft Pilots
  • Senior Government officials
  • Dentists
  • Lawyers
  • Air Traffic Controllers
  • City Brokers

So if you know someone in one of these jobs it is quite likely that they are one of the 1%.




But I am talking of real money:

These people perhaps do a bit better in the earnings stakes than you and me:


Estimated Earnings

David Beckham £40 million per year
Frank Lampard £14 million per year
Michael Schumaker $31 million per year
Tiger Woods $90 million per year
Stephen Spelberg $107 million per year
Jonathan Ross £6 million per year
James Patterson (writer) $84 million per year

Table one – The really high paid, source Forbes

Are the high paid different to you and me in some way?

It depends how you are looking at these groups.  What is clear is that they operate in particular segments of the labour market.  We all work in a segment of the labour market, be in the South-east, the Midlands, as a manual worker, a white collar worker, a dentist, a politician, but the high paid tend to work in a particular niche.

It is possible to argue that the labour market segments of high–paid occupations tend to have some very specific characteristics.  These are both explicit, in terms of entry requirements, continuing education and training, and (arguably more importantly) implicit requirements in terms of “knowing how things are done around here”.   These factors get you on the bottom rung of the ladder of a high paid profession.

The other reason why some people are high paid is because of something called “Tournament theory”.  A Forbes magazine article by Tim Harford summed it up quite nicely like this;

“The ugly truth is that your boss is probably overpaid–and it’s for your benefit, not his. Why? It might be because he isn’t being paid for the work he does but, rather, to inspire you. In other words, we work our socks off in underpaying jobs in the hope that one day we’ll win the rat race and become overpaid fat cats ourselves. Economists call this “tournament theory”



How do I get in to a high paid profession?

These are the common factors high paid occupations tend to have:

  • Explicit knowledge
    • A high level of a particular skill
    • A long training period  often involving a period of internship, training or practice on very low pay
    • The passing of some form of professional or skill hurdle For example, examinations, or some form of competitive elimination that excludes a lot of people trying to enter that profession or trade.  The “X” Factor or Professional football are good examples of competitive elimination.
    • Implicit knowledge- the unwritten rules of the particular labour market segment, “the way we do things around here”.
    • You also need high levels of non-cognitive skills such as self-discipline, leadership, self-awareness and self-control.  The Institute of Fiscal Studies argues that there is clear evidence that such non-cognitive skills are highly valued in the labour market.  (http://www.ifs.org.uk/publications/5541)   They also present evidence that the higher the occupational group your parents belong to the more likely you are to have high levels of these skills.  This point is also one of the major themes of David Brooke’s excellent book “The Social Animal” (http://www.amazon.co.uk/Social-Animal-Story-Success-Happens), and the major source of inspiration for this blog

So how do you and I get these knowledge sets?  The primary answer is social networks.  The family we were brought up in.  The school and university we went to.  We have to have knowledge that these professions and jobs exist and the points of entry.

If one of our parents or members of our family work, say, as medical consultants we already have a head start in knowing both the explicit and implicit requirements of that profession.  In terms of the importance of which school we attend, we only have to look at the current UK cabinet, all ex-Etonians, with the exception of the token northerner.

It is very likely if we belong to one of these families we will know both consciously and unconsciously how to behave and have a value set that is resonant with that required to be successful in a high paid role.

Having the right family or school connections also helps us jump another entry hurdle.  Having the right contacts makes obtaining internships very much easier.  These internships, perhaps in medicine, insurance, PR or politics are a key entry point to the professions for our children.

What do we need to do to deal with income inequality?

There are two answers to this question.  The first is that we do nothing.  The labour market works in so far as it ensures we have the right number of people doing the right jobs for the right pay.  After all, we would want to ensure that the medical consultant treating us was as qualified and experienced as possible; or the barrister representing us in Court was as competent as possible.

While acknowledging that the labour market is not perfect, it is a market.  The more supply there is the lower the cost falls.  That is why some professions such as medicine and law create barriers to entry and promotion, to preserve earnings of those at the top.

When I worked in investment banking it was hard to get properly qualified, motivated people with the right explicit and implicit knowledge to be successful investment bankers.  It is not an easy job and the demand is greater than the supply.  Thus earnings will remain high.  A good trader can make millions every year for her employer.  Few professions can make that claim.  Thus, there is reward for those who have the appropriate implicit and explicit knowledge.

The second reason for not doing anything about income inequality is a return to “Tournament theory”.  To reach the top of many professions take years of education, training and sacrifice.  Very few people would undertake this hard work and sacrifice unless they thought there was a pot of gold at the end of the rainbow.  The legal partnership, the medical consultant role, the Chief Executive position and so on.

If we go back to Helen, how many people would be willing to work sixty hours a week for fifty-one weeks of the year, have no time for friends, family or relationships.  To have their work performance measured by the hour in a highly transparent way without the high rewards that go with that sacrifice?

The other answer to “resolve” income inequality is one that politicians dislike.  It is because we need to start the intervention in early childhood, or even better, in terms of parenting.  The politicians do not like this answer because it can take decades for this approach to work.  But we know that all the attempts by those in political power have failed:

“Social mobility of young people ‘being held back by government policy’

Cuts to education, benefits and pensions likely to lead to deeper inequalities in the future, says leading social policy think tank”  (http://www.guardian.co.uk/society/2011/nov/01/social-mobility-held-back-government).

I again quote from David Brooks “The Social Animal”

“As Nobel Prize-winning economist James J. Heckman had found 50 per-cent of lifetime-earnings inequality is determined by factors present in the life of a person by age eighteen.  Many of these differences have to do with unconscious skills – that is, attitudes, perceptions and norms.  The gaps in them open up fast.”

These types of finding are anathema to many politicians and liberal thinkers.  It indicates that there is one way to bring up our children that gives them a much better chance of doing well, at least economically, in the great race of life.

What does not work?

Increasing taxation on the high paid will not resolve issues of inequality.  As Manual Castells http://en.wikipedia.org/wiki/Manuel_Castells has argued in his great work on society and networks “The Information Age: Economy, Society and Culture”, place makes very little difference to flows of capital.  The flows of capital will simply transfer to where transactions costs are lowest (accepting a common level of property rights and a robust legal system).  In any case the argument above indicates that the foundations for income inequality are laid in childhood. Income inequality is not resolved by way of a taxation system, no matter how progressive.

The “politics of envy” do not work either.  Attacking and trying to belittle those who are high earners does not decrease income equality.  Also, as noted above the top 1% of earners in the UK pay 27% of all income tax.  Without that contribution, or even reducing that contribution would result in the rest of us having to pay much higher levels of income tax or face very deep cuts in social expenditure, the very thing that could make the most difference, over the long term, to income inequality.  Returning again to James J Heckman http://www.heckmanequation.org/content/resource/presenting-heckman-equation

“Life cycle skill formation is dynamic in nature.  Skill begets skill: motivation begets motivation.  If a child is not motivated and stimulated to learn and engage early on in life, the more likely it is that when the child becomes an adult, it will fail in social and economic life”

The lesson for reward and performance professionals

The above arguments are very bad news for reward and performance professionals.  There is nothing we can do to reduce income inequality.  The foundations of inequality are laid in childhood and reinforced by Tournament theory.  There is a perverse argument that we should support income inequality to ensure we have people with the right experience and knowledge, to achieve appropriate levels of performance.  That is, it could be argued, the paradox of Compensation Committees, they have to pay on an increasing upward curve, competitive levels of reward otherwise they risk losing their better performing management.

What we can do is work with our talent management colleagues, with politicians and the education sector to emphasise the importance not just of formal education, but on our children having the appropriate levels of social and non-cognitive skills such as self-control and discipline before they enter the labour market; a herculean task indeed.  Only then, when we open up the high paid segments, can our profession hope to advance the worthy cause of reducing income inequality.