Work and Pay: Summary

by Manfred Davidmann

Contents

Introduction and Overview

National Remuneration Scales

National Remuneration Pattern

Pay    (Pay, Wage, Salary, Remuneration, Emoluments)

Pay Increments    (Merit, Cost of Living, Betterment)

Individual Incomes

Owners, Employers: The Cost of Getting Work Done. (Pay, Wage, Salary, Cost)
Individuals, Employees: Income, Take-home Pay, Standard of Living
Evaluating an Individual's Past Progress and Predicting Future Prospects

Community

Differentials
Personal Taxation
Conflict and Confrontation

Social Policy

Work and Pay
Taxation and Social Security
Differentials
Inequality and Change: Inflation and Pay
Overcoming Confrontation and Strife: Index Linking

Illustrations   <3>

Fig. 1		National Remuneration Scale for Directors
Fig. 2		Remuneration Increments: Merit, Cost of Living, Betterment
Fig. 3		National Remuneration Pattern
Fig. 4		Pay per Job: Comparison Between Calculated and Actual Pay, for Directors and Senior Executives
Fig. 5		Salary Scale: Engineering Department
Fig. 6		Salary Administration and Manpower Planning Technique
Figs. 7-10		Remuneration and Income Distributions: Correlation.

Notes <..> and References {..}

Relevant Current and Associated Works

Relevant Subject Index Pages and Site Overview

Introduction and Overview

What you see here is a summary of the main findings in Manfred Davidmann's report 'Work and Pay, Incomes and Differentials: Employer, Employee, Community' {1}. This is a concise all-embracing review and analysis of the whole subject of work and pay, in clear and easily understood language. What makes this report so special <1> is that it covers incomes and differentials from the point of view of the owner or employer, from that of the individual and his family and from that of the community, discussing the interests and requirements of each.

When talking about pay, incomes and differentials, then we are dealing with matters which are at the centre of confrontation and conflict and around which rage controversy and strife. We are dealing with matters which determine how one man stands in relation to another, with something which depends on negotiation and bargaining between those who employ and those who are employed. The result is that almost all one sees about pay and differentials is biased towards one side or the other and both points of view are then equally misleading.

But Manfred Davidmann here provides the underlying knowledge and understanding for scientific determination and prediction of rates of pay, remuneration and differentials, of remuneration scales and of national patterns of pay and differentials.

These correlations and methods represent a major breakthrough and rates of pay, incomes and differentials can be assessed with a high degree of reliability as a result. In this report we see how income depends on the kind of work one does, and on one's skill and expertise. We see how income changes with time and with the economic strength or weakness of a country. Now pay bargaining can include agreeing basic guidelines of the kind described here as governing pay increases.

Much of the work published first by Manfred Davidmann has since been used by others and these correlations and methodology represent a major breakthrough, converting a subjective confrontational system into one in which facts are used to describe reality and in which decisions can be based on facts.

Click any illustration to see the full-size chart.

National Remuneration Scales

Fig. 1 National Remuneration Scale (UK Directors 1969)

National Remuneration Scales (Fig. 1) show clearly, reliably and precisely:

The remuneration pattern, that is the pattern of pay, for a group or profession, in a particular year.

The position of every individual in that group or profession.

How income depends on one's experience and on the level of work done, showing how income depends on age and on degree of success, by means of 'Grade' lines.

Comparing scales for different years clearly shows to what extent an individual is maintaining his position relative to others of his age working at the same level elsewhere.

A National Remuneration Scale (NRS) thus shows how individuals progress, remembering that such scales apply to the particular profession or group for which they were drawn up. If an individual falls below his Grade Line then he will feel frustrated and look for greater responsibility and correspondingly better pay elsewhere. If he stays on the line he will be content and if he moves above it he will feel that he is making real progress, that is progress relative to his colleagues, and feel himself to be doing very well indeed, will feel himself advancing.

Such scales are used by employers to assess a person's past progress and future capabilities, and by employees to assess both progress as well as likely future prospects within the employing organisation.

National Remuneration Pattern

Fig. 3 National Remuneration Pattern (UK Median Incomes 1968)

The National Remuneration Pattern (Fig. 3) is the overall pattern, the national pattern of incomes and differentials. It is a precise pictorial record of the differentials within a country, from top to bottom, from young to old.

It is factual and reliable and the pattern of differentials is clearly shown. The same type of pattern applies throughout for all levels of employees.

The National Remuneration Pattern (NRP) shows the relative value placed on different kinds of work. At the top are the owners or those who work directly for them, at the bottom is the mass of wage earners.

Comparing the NRP for one year with that of another year clearly shows how different groups or professions have moved relative to each other.

Pay   (Pay, Wage, Salary, Remuneration, Emoluments)

Pay is wage or salary plus any share of profits. It includes payments and fringe benefits <2> such as assistance with house purchase, life insurance, private pension and social insurance contributions by the employer, car and travelling expenses, paid holidays and benefits provided by government.

Pay is pay, no matter what it is called. There is no difference between 'pay', 'remuneration' or 'emoluments' as long as we include all direct and indirect pre-tax payments and services received from the employer. {2}

Pay Increments   (Merit, Cost of Living, Betterment)

Fig. 2 Remuneration Increments: Merit, Cost of Living, Betterment

Fig. 2 illustrates how National Remuneration Scales are used to show clearly, reliably and precisely

Individual Incomes

Owners, Employers: The Cost of Getting Work Done   (Pay, Wage, Salary, Cost)

Fig. 4 Pay per Job: Comparison Between Calculated and Actual Pay, for Directors and Senior Executives		Fig. 5 Salary Scale: Engineering Department

Owner and employer require work to be done at the lowest rate at which it can be done adequately. The worth of a job is simply what has to be paid to get it done.

The worth of the job and differentials depend to some extent on demand for the particular service in relation to supply of those offering to do the work, and on levels of knowledge and skill, experience and responsibility. There are job evaluation systems but each system rests on subjective assumptions and the results in any particular case depend on the assumptions made. (Fig. 4)

Pay and salary scales record the range of work which has to be done at each level of position and state the worth of that work to the employer. (Fig. 5)

Individuals, Employees: Income, Take-home Pay, Standard of Living

The pattern of pay for individuals in particular professions or groups is reliably shown by National Remuneration Scales (NRSs).

People find their level of skill and responsibility while relatively young and from about 25 to 30 years of age onwards their income increases in a well-defined way along so-called 'Grade Lines'. National Remuneration Scales show this (Fig. 1). The Grade Lines clearly show how income depends on one's experience and on level of work done. They do this by showing how income depends on age and on degree of success.

Figs. 7-10 Remuneration and Income Distributions: Correlation

The grade lines, including the median line, are accurate as they are based on massive data for the profession's members. The extent to which the data is correlated can be seen from Figs. 7-10.

National Remuneration Scales also show clearly the merit increase which has to be given at each age and level of working, the amount needed to cover the increasing cost of living, and the extent to which one is sharing in the changing national standard of living (Fig. 2).

Comparing scales for different years clearly shows to what extent an individual is maintaining his position relative to others of his age working at the same level elsewhere.

Another factor is that pay relates to the individual's need for income, that he sees it in terms which depend on the size of his family and on commitments such as house purchase or children's education.

Evaluating an Individual's Past Progress and Predicting Future Prospects

An individual progresses not merely in accordance with his own ability and increasing experience and skill but in a way which is limited by the scope available to him, by the opportunities for progress within the organisation. The individual can assess both his past progress as well as likely future prospects within his employing organisation by using the same technique, 'SAMP', used by employers.

An employer can plan an individual's progress and match it to the organisation's needs for getting work done effectively and cheaply, as follows.

One matches the rate for the person (Example: Fig. 1 'National Remuneration Scale')

with the rate for the job, that is with the worth of the job (Example: Fig. 5 'Salary Scale'),

by superimposing the two scales on top of each other (Example: Fig. 6 'Salary Administration and Manpower Planning Technique').

Fig. 1 National Remuneration Scale (UK Directors 1969)		Fig. 5 Salary Scale: Engineering Department		Fig. 6 Salary Administration and Manpower Planning Technique (SAMP)

This technique is called SAMP which stands for 'Salary Administration and Manpower Planning'. The SAMP chart (Fig. 6) enables an employer to plan professional and managerial manpower to meet present and future demands, takes much of the trial and error out of the situation, and is described and discussed in detail in the main report {1}.

The person whose responsibilities change in measure with his ability and experience, and who is paid accordingly, is paid in accordance with his Grade Line and moves along it as he grows older. This is so because that line shows how he is getting on in relation to his colleagues of the same age elsewhere doing similar work, working at the same level of responsibility. As long as he moves according to his Grade Line he is doing as well as others of his profession at the same age.

So an individual can assess both his past progress as well as likely future prospects within his employing organisation, at any point of time, by comparing his progress with the corresponding Grade Line on the SAMP chart while noting barriers to progress imposed by the employer's pay scale.

Community

Differentials

Some earn more and some earn less and the differential between two people measures how their earnings compare with each other. It can be a direct comparison either of earnings or of the ratio between them.

The National Remuneration Pattern (Fig. 3) illustrates the national pattern of incomes and differentials in the United Kingdom at a particular point of time, directly comparing the amounts earned for occupations ranging from manual workers through professional employees up to company directors. The amounts earned include fringe benefits and are median incomes in each occupation, which means that in each age group half earn more and half earn less.

Comparing the National Remuneration Pattern for one year with that of another year clearly shows how different groups or professions have moved relative to each other.

The National Remuneration Pattern is factual and reliable. It shows the relative value placed on different kinds of work in the United Kingdom. It is largely determined by employers.

The pattern tends to be applied through national or industry-wide centralised negotiations. The employer sets a rate for the job which is not what he can afford to pay but is simply the least he has to pay to get the work done.

At the top are the owners or those who work directly for them, at the bottom is the mass of wage earners. It is a pattern of differentials which rewards service to the owners and their establishment rather than ability or service to the community. And so the nurse, the minister, the fireman, the policeman and the teacher are at present paid comparatively little for the work they do.

Those who provide jobs and money have power over those who need to work so as to live. This applies also to those who have the power to give or not to give in national and local government, and the civil service. Putting the interests of the owners and of their representatives before that of the community is probably the main cause of our deteriorating environment and of lowering the quality of life.

Personal Taxation

Personal income tax is normally used in the Western world for adjusting an individual's contribution to the community according to his income and social commitments, and according to the community's needs. The incidence of taxation is a matter of social policy and is not related to the work being done or to how well it is being done.

While basic and higher rates of income tax are felt to be highly dissatisfying, only a few directors feel that a reduction in taxation would encourage better performance.

Higher taxation reduces take-home pay, lower taxation increases it. Hence one way of increasing take-home pay is to pay less tax and effort is sometimes concentrated on increasing take-home pay by reducing the amount of tax one has to pay, is concentrated on providing or demanding fringe benefits. Fringe benefits are non-taxable personal services or benefits in kind which are provided by the employer.

But the value of a fringe benefit is defined as follows {1}:

'The value of a fringe benefit to the recipient is the grossed-up value of the benefit, is the amount he would have had to earn at his highest level of taxation so as to have the value of the benefit remaining after tax has been deducted'.

Summing up we can say that the incidence of taxation is a matter of social policy. Those paying high taxes find this highly dissatisfying but reducing taxation does not encourage better performance.

Thus a socially responsible government uses progressive taxation so that those who have most contribute most, collects more from those who have larger incomes, while providing and ensuring social security benefits and payments for those who are deprived and for those in need.

Conflict and Confrontation

While profits, dividends and 'capital gains' increase automatically in measure with inflation, a bitter struggle develops as owners and employers attempt to use inflation as an excuse for reducing labour costs, that is wage rates, wages and salaries of the working population, so as to increase profits still further. Employees are then not compensated for increased skill, experience and responsibility (increased merit), nor do they receive their share of the increasing national income and wealth (the betterment), do not receive merit increases and betterment increases. Pensioners also stand to lose betterment increases, do not receive their share of the increasing national income and wealth (the betterment) which is being achieved on the basis of their past labours. {3}

Here is an example. UK pensions had been linked to the index of average earnings but from 1980 they were linked to the cost-of-living index. Hence since 1980 the UK government has, for no apparent good reason, withheld from pensioners their share of the increasing national income and wealth, amounting to something like 2 percent of their pension every year. As a result their present pensions are a fraction of what they ought to be, and would now have to be increased by 34 percent just to reach the level at which they should be now. And pensioners would still have to be compensated for the moneys withheld from them without good reason by the government since 1980. {3}

But we have, and have had for many years, the knowledge, understanding and means for automatically increasing pay and pensions in line with the cost of living (inflation), while allowing at the same time for increased merit (knowledge and experience) and the betterment (share of increased national income), by means of index linking. <5> {3}

Social Policy

Work and Pay

From the point of view of the individual and of the community there should be work for those who want it. There should be equal opportunity dependent only on ability. And work should be challenging, which means there should be scope to work at increasing levels of skill and usefulness and thus of pay to the maximum of one's ability. Income should cover social needs and depend on the extent to which an individual's work serves the community.

One job per family should be sufficient to provide its members with a good life. This applies equally well to the young who want to marry and set up home. We need to pay in all cases at least that amount which is required to keep the employee and his family at a standard of living which is worthwhile striving for.

When looking at pay one must take into account the hours worked each week. Consider two people earning the same amount each week. If one of them has to work twice the number of hours than the other to earn the same amount, then his rate of pay is half and his way of living is very different.

It is also important that the earnings of manual employees depend very much on hours worked, that is on the state of the economy, and inequalities are much greater during a time of unemployment, during economic crisis and stagnation.

When a man has to have two jobs to enable his family merely to exist, or when both husband and wife have to work so as to exist or have merely a reasonable life, then they are in effect exploited.

Incomes increase with age and mostly tail off to a maximum. From the point of view of the individual this means that he is struggling while young and much better off when older. It can be argued that one's income should be higher when young, that is should be higher while marrying, establishing home, having children and bringing them up.

Individuals should have the right to know all relevant information about work and pay, no matter whether technical, organisational, accounting or financial. Included would be information like salaries, wages and expenses of individuals, but not private and personal information. {2}

Also needed is recognition by others of a person's achievement, which leads to feelings of self-respect, strength and confidence. {4}

Taxation and Social Security

The incidence of taxation is a matter of social policy. Present-day government provides and ensures social security benefits and payments, as a matter of right, for those who are deprived and for those who are in need. The funds for doing so are obtained by progressive taxation which takes more from those who have larger incomes.

This limits to some extent the income received by those at the top. But while those paying high taxes find this dissatisfying, reducing taxation does not encourage better performance.

Negative income tax can be used to adjust the total income from all sources. This can be done effectively in a way which still allows purchasing power to increase at a rate of about four times at the top when compared with the bottom. The adjustments apply only to the extreme income levels in the community. Incentive to do well and reward for good work are not affected since rewards for increasing skill, professional excellence, promotion or business success are not affected by the proposed adjustment. Differentials would still continue to increase as those at the top gain more take-home purchasing power than those at the bottom. <4>

Differentials

The community's needs have to be met and the extent of the community's need to get certain work done should determine the amount to be paid for it. In general people should be rewarded according to the benefits which result to the community, perhaps basing the reward on some measure of the benefit, as a result of gains made.

The problem is to find ways of making reward relate to a community's needs. Just what are the 'needs' at any one time and how does one assess their relative urgency?

So it is not easy to assess the relative service rendered to the community by people in different positions bearing in mind that a community's needs may change with time.

For example, how can one determine what should be the differential (if any) between the value of a nurse's work and that of a tractor driver, at harvest time and in winter?

History shows that it is easier to talk about stopping people from harming and exploiting each other than to ensure that they do not do so. One way of making sure that people do not harm and exploit each other is to make sure that they cannot gain either through manipulation or through harming people.

Which means that when it comes to incomes and wealth one has to limit differentials, and that one has to consider just what sort of differential would be both fair and appropriate.

We are now so organised and inter-dependent that it is common for the whole community to be inconvenienced whenever there is a local disruption of some service. Which emphasises that each activity is essential for the welfare of the community and leads one to consider whether there should not be a common wage for all. {2}

Within a kibbutz all are equal, all share to the same extent. Some are more able than others, some do more than others, but all are paid the same. Earnings are pooled and divided equally. The success of the kibbutzim is well known. {2}

Mondragon co-ops succeeded in spreading the benefits of co-operation within their local community. Kibbutzim achieved a good and secure life of high quality for their members. {2}

And local work-exchange currency systems apply a constant rate of pay per hour, valuing a person's work as the time in hours taken to complete it. It is hours of work which are being exchanged, all receiving the same currency rate per hour. {2}

Co-op directors do not get paid for what they do as directors, are generally unpaid volunteers. Some directors receive a shop discount, others have approved expenses repaid. {2}

Kibbutz experience shows that members acting as directors or managers gained much from doing so. There is the knowledge that one is applying one's abilities and skills to the full in meeting the challenges which arise. And there is the satisfaction of knowing that other members of the co-op are aware of the work one is doing and of its contribution to the common good. {2}

At Mondragon, for example, each member is paid the local going rate for the work he does. But the before-tax differential between the lowest paid and the highest paid is limited to three, and directors receive no extra pay for the work they do as directors. {2}

And so a maximum differential of two, the maximum gross remuneration being twice the minimum, both within and between countries, would seem a reasonable target to achieve under present more extreme circumstances. {2}

In other words, we should limit the before-tax differential between the highest paid and the lowest paid (old-age pensioners or those receiving social security benefits, whichever is the lower) to a factor of two.

But the amount received by the highest paid should increase only after the income of the lowest paid has increased, and then only corresponding to the increase at the lowest level. {2}

Inequality and Change: Inflation and Pay

We need to become aware of processes which redistribute income to benefit a few at the expense of the many. We need to see what is actually happening, the extent to which it is taking place, and what the effects are. And we need to counter such trends and manipulations.

Inequalities increase during a time of unemployment, during economic crisis and stagnation.

But differentials and poverty increase even when there is full employment in an affluent society as long as attention remains focused on percentage increases instead of on amounts. The same percentage increase means a far greater amount at the top compared with the bottom of the income scale. In this way inflation redistributes take-home purchasing power from the bottom to the top.

The great and increasing inequality between the well-off and the rest of the population is revealed when one looks at the amounts each receive as their share of the increasing national wealth.

Inequality has been defined and measured and the unequal sharing out of additional purchasing power has been going on for many years. The increasing differential between poverty at the bottom and luxury at the top is undermining the internal strength of our society as those who see themselves in real and in relative poverty complain, demonstrate, organise and disrupt.

Merely to prevent inequality increasing, that is getting worse, we need to give automatic increases which fully compensate for an individual's increased skill, knowledge, experience and responsibility (increased merit), for inflation (increasing cost of living), and which provide him with his share of the increasing national income and wealth (the betterment increase). {3}

But we have, and have had for many years, the knowledge, understanding and means for automatically increasing pay and pensions in line with the cost of living, while allowing at the same time for increased merit and the betterment, by means of index linking and this is discussed in more detail in the next section. {3}

Overcoming Confrontation and Strife: Index Linking

Consider how index linking operates in relation to the increasing cost of living. {3}

Owners' profits (dividends plus capital gains) increase automatically whenever costs increase. So profits are in effect linked to costs, to inflation. {3}

But a ruling establishment could be expected to avoid and resist index-linking of pay because index-linking would limit their efforts to increase profits by lowering the standard of living of the population. What stands out is the way both trade union and political establishments appear to have neglected index-linking for so many years. {3}

Linking of pay to a cost of living index takes the heat out of employer and employee pay bargaining, reduces confrontation and strife, eliminates having to struggle just to maintain one's place. It is at times applied to essential public services such as medical, fire, police, teaching and government. {3}

Pay is reviewed at intervals and is increased according to changes in the index. If the index has increased by say 2 percent, then pay is increased by 2 percent. Another way of linking is to increase pay by a given percentage whenever the index has increased by that percentage. {3}

But the cost of living index should, by its composition and weighting, reliably reflect the cost of living of the working population, and be protected against politically motivated changes which favour one side or the other. {3}

After the introduction of index linking, pay bargaining can concentrate on the main issues, namely how to share out the increased value created by the joint effort of both sides, how to adjust national differentials to ensure that no one section gains unfairly at the expense of others and how to balance out inequalities. {3}

Notes and References

Notes

References

Relevant Current and Associated Works

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10/02/02 Work Completed
20/03/02 To Website

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