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Pay inequality ‘costs firms more money in the long run’, says new study

Businesses with the biggest gaps between the highest and lowest paid employees’ pay suffer more industrial action and higher staff turnover, according to a new study.

Yahoo Finance UK – Mon, Jan 20, 2014 11:59 GMT

  •  Firms with the biggest gaps between the lowest and highest paid staff salaries see the highest staff turnover and sickness rates

Paying some staff members substantially more than others may be a false economy in the long run, suggests a new report.
Companies that pay some employees substantially less than other workers experience higher rates of staff sickness and industrial disputes than other firms, according to a study commissioned by the High Pay Centre, a think-tank.
The study of almost 2,000 workplaces found that businesses with the biggest gaps between the salaries of their lowest and highest paid employees also experienced the highest staff turnover.
Researchers at the University of London found that companies where top earners are paid 10 times more than the lowest-earning employees were hit by industrial disputes at least once a year, more than businesses with lower pay differentials.
Workplaces where bosses receive 8 times the pay of junior employees reported at least one case a year of work-related illness, while those with pay differentials of 5 or less reported none.
According to the report, executive pay has increased by 450% in the last 12 years, while on average employee pay has risen by 16%.

“High executive pay is not only frequently unmerited, but has a huge hidden impact on the rest of the organisation and society as a whole,” said Deborah Hargreaves, director of the High Pay Centre.
“Whether it’s through staff turnover, sickness, low morale or industrial action, big pay gaps undermine employees’ loyalty to the company and their managers.
“Employers suffer lost productivity, have to pay more sick pay and legal and recruitment costs as staff left feeling the financial and emotional strain are driven even further into the ground.”
A recent study by the Health and Safety Executive found that work-related stress cost businesses 10.4 million work days in 2012 – an average of 24 days per case. The report also found that workplace illness costs the UK an estimated £8.4bn.

High staff turnover also hits businesses’ bottom line. According to figures from the Chartered Institute of Personnel and Development, employee turnover costs firms an average of £5,800 per worker, and £20,000 per senior staff member.
An interesting alternative to the usual custom of keeping employee salaries private was last year unveiled by San Francisco-based technology start-up Buffer.
The firm took the unusual decision to publish online the pay levels of all of its staff – from the engineers to members of the senior corporate management – in an effort to increase “transparency”.
“We hope this might help other companies think about how to decide salaries, and will open us up to feedback from the community,” CEO Joel Gascoigne said last December in a blog post.  He told reporters that he hoped to generate more commitment from employees by focusing on the company’s “culture”.

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