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The role played by large firms in generating income inequality: UK FTSE 100 pay practices in the late twentieth and early twenty-first centuries

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  • Willman, Paul
  • Pepper, Alexander

Abstract

We examine the role of large firms in generating income inequality. Specifically, we consider the growth in the use of asset-based rewards for senior executives, combined with continued use of salaries and wages for other employees, and the impact this has on measures of inequality within firms. Our paper presents data on intra firm inequality from the UK FTSE 100 for the period 2000-2015. It looks at ratios of CEO to average earnings and attempts to explain both the growth in inequality on this measure and the extent of variance between firms. It distinguishes between a period of ‘administered inequality’ up to the early 1980s when intrafirm processes defined differential pay and a subsequent one of “outsourced inequality”, when capital market measures dominate executive pay. In the latter period, intra firm inequality measures are defined by upward movements in capital market measures and the extent of outsourcing of low paid work. We conclude by discussing a number of UK public policy proposals regarding executive pay.

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  • Willman, Paul & Pepper, Alexander, 2020. "The role played by large firms in generating income inequality: UK FTSE 100 pay practices in the late twentieth and early twenty-first centuries," LSE Research Online Documents on Economics 101870, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:101870
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    Cited by:

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    3. Linsi, Lukas & Hopkin, Jonathan & Jaupart, Pascal, 2023. "Exporting inequality: US investors and the Americanization of executive pay in the United Kingdom," LSE Research Online Documents on Economics 113543, London School of Economics and Political Science, LSE Library.
    4. Tristan Auvray & Cédric Durand & Joel Rabinovich & Cecilia Rikap, 2021. "Corporate financialization’s conservation and transformation: from Mark I to Mark II," Review of Evolutionary Political Economy, Springer, vol. 2(3), pages 431-457, December.

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    More about this item

    Keywords

    CEO compensation; firms; inequality; pay ratios;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

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