Source: Management Today
Date: January 2007
Author: Richard Reeves

Dividing the spoils more equally can make for happier people and better businesses. Give staff a stake in the firm and the chance to add value.
Is the pay gap between men and women getting wider or narrower? Well, it depends which newspaper you pick up. The FT points out that the gap in average salaries fell last year, and for the under-thirties it has disappeared. The Guardian reports that the gap actually worsened over the same period. The fact that both are right might well bring Disraeli's dictum of 'lies, damned lies and statistics' to mind.

The difference depends on which kind of average you prefer. The median pay gap dropped from 13% to 12.6%; the mean rose from 17.1% to 17.2%. (Statistics teachers must love it when this happens.) In the old days - ie, the last century - the mean-median difference didn't matter much. But now, the soaraway salaries of those at the top of the income scale are pulling the mean wage up much more quickly than the median and, because these are mostly men, changing the picture of the gender pay gap.

So behind the women's pay issue lies the even deeper one of the levels of overall inequality now being generated by the labour market, and all with barely a murmur of protest.

The pay of directors in the FTSE-100 rose by a mammoth 28%, in contrast to average earnings rising at 3.7% - just above inflation of 2.5%. Just about everyone is getting richer. But the rich are getting much richer, much faster than everyone else. Does this matter? And, if it does, what can be done about it?

Income inequality does matter. Societies that are more equal are more cohesive, have higher levels of trust, better public services, greater social mobility, cleaner politics and happier people. When the gap between the super-rich and everyone else reaches a certain point, society is in grave danger of mutating into an oligarchy.

Even if this diagnosis is right, the remedy is elusive. Maximum wages or punitive taxes are not practicable, at least on a national basis: the rich are mobile and may simply up sticks. The real solution lies in the organisation of corporate ownership. Every CEO claims that people are the firm's greatest asset, and it's true that human capital and labour productivity are the new holy grails of corporate performance. Yet employees as a whole get a smaller slice of the profit cake. This is hardly sustainable.

Successful enterprises are increasingly those in which staff are active co-creators of value, rather than passive followers. But it's an uphill struggle to persuade people to go the extra mile for the firm when the money generated flows into the hands of others. As Groucho Marx put it: 'What makes wage slaves? Wages!'

But there is a mechanism by which the quality of working life and the productivity of organisations can be lifted: giving staff a financial stake in their firm and the opportunity to add value.

People who are co-owners of an enterprise are inescapably invested in its success or failure. But co-ownership is only half the story. When a structure of co-ownership is combined with the culture and systems of co-creation - consultation, information-sharing, employee forums - organisational performance moves up a gear. Co-ownership and co-creation weave together, like the twin strands of a DNA helix, to deliver a new way of doing business and a better way of doing work. These 'CoCo' companies - John Lewis is the biggest example, but there are plenty of others - are reaping productivity rewards.

In CoCo companies, the share of profits going to labour is, by definition, higher than in other firms. And the gap between the boss's paypacket and the average employee's is much lower. The leaders of these firms still make more money than most people would know what to do with, yet their remuneration cannot be called obscene.

Gordon Brown has said nice things about employee ownership and tinkered with the tax system to help it. But there's no loud movement demanding a more capitalist society (in the sense of creating millions more capitalists). But there are signs of life: the newly branded Employee Ownership Association - for whom, to declare an interest, I have written a report* - has formed an all-party group to lobby for greater support. The new-look Conservatives are, of course, all over the idea.

CoCo companies may offer an organisational model whose time has come. A century and a half ago, various forms of mutual or co-operative enterprises were seen by many thinkers as the future. For philosopher-economist John Stuart Mill, co-ownership held out the prospect for 'the healing of the standing feud between capital and labour; the transformation of human life, from a conflict of classes struggling for opposite interests, to a friendly rivalry in the pursuit of a common good to all; the elevation of the dignity of labour; a new sense of security and independence in the labouring classes; and the conversion of each human being's daily occupation into a school of the social sympathies and practical intelligence'.

But then came collectivism, with its *** offspring state socialism. For most of the last century, the ideological battle between socialism and free-market capitalism has been so ferocious that anything smelling of the former was on to a loser. In fact, CoCo capitalism is neither a left-wing nor a right-wing idea; it is just a good one.

*CoCo Companies: Work, happiness and employee ownership, EOA