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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 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.

Suggested Citation

  • 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 103809, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:103809
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    More about this item

    Keywords

    CEO compensation; firms; inequality; pay ratios; International Inequalities Institute;
    All these keywords.

    JEL classification:

    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General

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