The pay disparity between lower level workers and senior managers has increased in every region worldwide since the start of the global recession, with the UK no exception. In the UK senior managers are now earning 3.3 times that of their subordinates, with the difference growing by 5.3% since 2008.
In recent research from the Hay Group the difference in pay enjoyed by senior managers – heads of departments but not executive – is compared to that of lower level workers – comprising skilled manual, clerical, supervisor or graduate entry jobs. The research covered more than 110 countries, and involved 24,000 organisations employing 16 million people.
In terms of regional variation, the difference in pay in the UK, now at 3.3 times, is “surging ahead” of many of its European neighbours. Not merely in terms of the absolute difference, but also in terms of its growth rate. France currently has a similar level of disparity at 3.3 times; in Germany and Belgium the difference stands at 2.8 times; while Switzerland and Norway are enjoying the lowest difference in the greater European area with a difference of 2.5 times. The largest gap is in the Ukraine at 11.4 times.
The growth rate between the two positions is also on the increase in the UK, with the pay gap widening by 5.3% since 2008. While the average European gap has increased by 2.2%. Not every European country is seeing an increase, with Switzerland, France and Poland recording decreases of 3.3%, 5.6%, and 12.8% respectively in the period since 2008.
Adam Burden, consultant at Hay Group, comments on this discrepancy: “While the difference between the pay gap increase in the UK and Europe is attention grabbing, it is not altogether surprising. Mainland Europe has a strong tradition of trade unions which have helped maintain pay equality despite a shifting business landscape and economic fluctuations.”
While the disparity is on the increase in the UK, it still has some ways to go to catch up to the US where the difference in pay is 4 time, while seeing a 10.6% growth since 2008. Although, even the US is trumped by many developing countries, with China currently recording a difference of 13 times and incurring an increase of 7.8% since 2008.
Burden explains: “Despite an average global increase in the job level pay gap, Europe and America have diverged in part due to local employment practices. In response to the recession, many companies in Europe, including the UK, introduced pay freezes. In comparison, U.S. companies more frequently cut jobs and asked the remaining senior managers to expand their scope of work during the recession. Many of those who remained employed received a pay increase as compensation for their expanded role, leading in part to the widening job level pay gap.”
The consultancy cites a number of different reasons for the divergence in pay. Globalisation has boosted competition worldwide, with outsourcing a result, opening a large pool of low skilled workers in developing countries, but it has also created an increased demand for (international) senior level employees. They remain however short in supply, with developing country companies therefore having to offer senior salaries close to mature market levels.
Digitalisation is another factor, with automation decreasing the need for lower level workers while increasing the pool of available workers which is decreasing their competitiveness and decreasing their bargaining power. While in contrast, pay is going up for senior managers where skills such as emotional intelligence, creative thinking and advanced judgement are in high demand and continue to be in short supply.
Burden continues: “The potential for a large job pay gap to cause discontent among the workforce is huge. Organisations need to be transparent with employees and communicate why reward policies are in place.”