We are in the midst of an important societal conversation about the ethics of pay, and in particular fair pay.
But what do we mean by ‘fair’?
Is fairness about equality or do those who contribute more deserve more? And is fair pay a corporate issue - or an issue for governments to solve using the levers at their disposal?
PwC asked over 1,000 senior executives about their attitudes to fairness and distributive justice in companies and society.
The objective of the study is to provide insights for organisations to engage with their workers and communities, as they build reward structures that are ethical, fair and meet employee, as well as wider societal, expectations.
Tom Gosling, global rewards partner, PwC UK, talks through the report findings and looks at the different principles of distributive justice.
Tom Gosling, Global Rewards Partner, PwC UK, talks through the report findings and looks at the different principles of distributive justice | Duration 1:33
Our study considers six different academic principles of fairness:
Whatever income voluntarily paid to someone is just.
Individuals should be free to engage in whatever transactions they voluntarily choose to engage in. Forced redistribution from some to others is unjust.
The distribution of income should lead to an efficient allocation of labour.
Wages should reflect relative scarcity, thereby allowing us to allocate resources to where they can be put to their most valuable use.
Those who contribute more deserve more.
People who make a greater contribution should earn a higher income. Pay should reflect contribution, effort, experience and the demands of the job.
Outcomes are fair provided the starting point is.
A just society is characterised by equality of opportunity. No one should be disadvantaged from the start. Market competition is fair as long as everyone's opportunities are truly equal.
A guaranteed minimum standard of living for all.
Everyone should be able to lead a dignified life and be able to meet their basic needs. As long as some people do not have sufficient income to lead a decent life, more income should be redistributed to them. But once everybody has enough, further redistribution need not take place.
Income should be distributed so as to make the worst-off members of a society as well off as possible.
Given human psychology we should accept some level of income inequality in society to harness productive capacity. But a fair society should only tolerate whatever income inequality is necessary to make the worst-off as well-off as they can be.
The four more moderate principles of Efficiency, Just Desert, Equal Opportunity, and Sufficiency, were the most favoured by a considerable margin.
Respondents typically favoured three or more principles this allowed us to group them into our fairness ‘tribes’.
PwC were able to identify clusters in the data where groups of like minded people take a similar perspective on the different dimensions of fairness. The data broke into four clear and broadly equally-sized clusters.
Idealist tribe: Distribution of wealth should lead to moral outcomes
Communitarian tribe: All members of a community should have an income that is sufficient for them to lead a dignified life
Free Marketeer tribe: If there are equal opportunities for all, talented people deserve to receive income in line with their contribution
Meritocrat tribe: Individuals are entitled to receive economic benefits because of their efforts and contribution
Respondents supported multiple principles simultaneously, even though many of the principles are in conflict.
This shows that attitudes to fairness are complex and multidimensional. A single principle cannot describe the richness of human attitudes. To develop an outcome that is seen as just requires subtle trade-offs across many dimensions.
The idea that companies create wealth and societies distribute it did not seem right to this senior population. Companies are viewed as social entities in their own right, a microcosm of the distributional challenges faced at the level of society.
Analysis shows that the data is remarkably consistent across a range of demographic dimensions. There were no significant differences by, gender, territory or earnings level. But this does suggests that the dimensions of fairness and the desired balance between them hold universal appeal.
One significant demographic predictor of which philosophy of fairness was most favoured: Age.
The under 40s were far more likely to part of the Idealists tribe than any other age group, and the over 50s were far more likely to be in the Free Marketeers tribe. This is significant in the current debate about intergenerational fairness between Gen X and Y and the baby boomers.
Companies, as well as societies, are not always living up to people’s hopes of them. Typically, a quarter to a third of people feel that companies are not delivering principles of fairness that they deem to be important.
Public and political debate on fairness is here to stay, and will influence public policy relating to the corporate sector. Companies should therefore consider their perspectives on this debate. The first step for each company is to figure out exactly what fairness means for them.
Global Rewards Partner, PwC (UK)
Tel: +44(0) 20 7212 3973
Principal, Global Reward Leader, PwC US
Tel: +646 471 0651
Director, Workforce of the Future research programme, PwC United Kingdom
Tel: +44 (0) 77 1016 9938