Pay differentials in cooperatives

I resisted the temptation recently to comment on the issue of apparently excessive executive pay in the Co-operative Group when the story broke, although the question of pay in coops is something I’ve discussed here before.

I’ve been tempted back to this subject by a piece in today’s FT from Luke Johnson, the businessman who made a fortune from the Pizza Express restaurants and now has interests in, among other things, Giraffe and Patisserie Valerie. My eye was caught by Johnson’s comment that “I am not convinced large salaries are that effective in delivering superior results… I think paying a chief executive 100 or even 200 times the basic pay of the lowest-paid worker in a company is both ineffectual and bad for capitalism”.

I once argued at a national cooperative conference that cooperative businesses should take a strong ethical position on executive pay and have a pay differential of no more than 20 times the lowest paid employee. I’m not sure I was popular with the CEOs present, but even this sort of ratio is open to challenge: is any human being’s work really worth twenty times somebody else’s?

More recently, and partly in the light of the Co-operative Group pay issue, I’ve been pondering this again. I do recognise that a pay differential rule in coops of, say, 1:20 would unduly affect very large coops. The chief executive of a cooperative business turning over, say, a few millions of pounds would probably find their pay even at twenty times minimum wage broadly in line with those of other similar-sized non-cooperative businesses; the chief executive of a multi-billion pound cooperative business would not. So a pay differential rule could mean large coops struggled to find senior staff with appropriate experience elsewhere (since humans being humans, not many people accept pay cuts) or encourage coops to stay small. Neither is necessarily desirable.

Whilst it would be nice to think that other cooperatives could replicate the position at the workers’ coop Suma, where all staff receive the same wages regardless of the work they do, this is not going to happen. I had hoped that the issue of executive pay in cooperatives was going to be on the agenda at the forthcoming Québec summit (Monique Leroux, the CEO of host cooperative Desjardins, has herself had her pay entitlement queried by members) but it doesn’t now seem to be happening. So in the interim, my tentative proposal would be something along these lines.

Cooperatives should pay staff at the living wage level, not just the minimum wage rate. There should be a norm of coop pay differentials being no more than 1:20, and the ratio should be published annually in members’ reports. And there should be a ‘comply or explain’ principle, so that coops which exceeded the 1:20 ratio should be obliged to state why they’d chosen to do so.

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