The ethics of pay in a fair society

What do executives think?

About the report

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.

 

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Tom Gosling, Global Rewards Partner, PwC UK, talks through the report findings and looks at the different principles of distributive justice | Duration 1:33

 

Ways to think about fairness

Our study considers six different academic principles of fairness:

Entitlement

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.

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Efficiency

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. 

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Just desert

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.

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Equal opportunity

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.

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Sufficiency

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.

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Maximin

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.  

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Key findings from the survey

Moderate principles rule

Moderate principles rule

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’.

People cluster into four 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

 

 

It’s more complex than we thought - fairness is multidimensional

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.

It’s more complex than we thought - fairness is multidimensional
Attitudes to fairness in companies and societies were strikingly similar

Attitudes to fairness in companies and societies were strikingly similar

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.

Universalism rules

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. 

But age does matter

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. 

 

But age does matter
Unmet aspirations

Unmet aspirations

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.

Our recommendations

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.

Boards need to translate the key principles of fairness into their own business, and decide which is relevant to them given their business, workforce, and culture. Different businesses will place different weights on the dimensions, which should be tailored to each company’s purpose, culture, and strategy.

Fairness principles will come alive through their expression in tangible people policies such as living wage adoption, pay-for-performance, worker security, equal pay and so on. Companies should identify the concrete policies that support their board-approved fairness principles.

Develop metrics that enable progress towards fairness to be measured and monitored, this can include objective outcomes such as equal pay statistics, social mobility in the organisation, pay ratios, market positioning, and so on. Developing a ‘fairness dashboard’ can help with accountability and reporting.

We have identified four common philosophies of fairness that people hold. The most appropriate fairness principles for the company will depend on employee attitudes and culture. Engage with employees to find out what fairness means to them and use the insight to refine company fairness principles.

Contact us

Tom Gosling
Partner, PwC (UK)
Tel: +44(0) 20 7212 3973
Email

Scott Olsen
Principal, Global Reward Leader, PwC US
Tel: +646 471 0651
Email

Justine Brown
Director, Workforce of the Future research programme, PwC UK
Tel: +44 (0)113 289 4423
Email

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