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

Paul Willman and Alexander Pepper

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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 1980’s when intra-firm 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.

Keywords: CEO compensation; firms; inequality; pay ratios; International Inequalities Institute (search for similar items in EconPapers)
JEL-codes: J01 R14 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2020-12-01
New Economics Papers: this item is included in nep-bec, nep-com and nep-his
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Published in Economy and Society, 1, December, 2020, 49(4), pp. 516 - 539. ISSN: 0308-5147

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:103809

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