October 7, 2011 10:05 pm

Measuring the pay gap in square feet

The days when the boss’s manor house served as an imposing reminder of the power structure are gone, writes Ed Hammond

The disparity between what bosses and their employees earn has become one of those recession-chic topics. Politicians are particularly wont to rabbit on about how unfair it is. There have been marches. “The people” are, rightly, very indignant. So much so that in the UK a public inquiry has been launched to have a poke around.

Thus far, however, no one has asked the really interesting question: what are bosses buying compared to their workers?

How much, for instance, does the average chief executive spend buying his or her house compared to the company’s average employee? Or, how many shoes does the boss’s spouse own compared to the staff’s other halves and what is the median value of each pair? Even a ratio showing the average horse-power disparity between the chief exec’s primary vehicle to that of his or her average worker’s would be fascinating and telling in equal measure.

A simple, colour bar graph plotting any of the above would better deliver the pay gap message than the current drivel about things like “median annualised total take-home disparity”. It would also be accessible. Even someone with the financial attention span of a Greek tax collector would understand the thrust of it.

Going on the key finding of the aforementioned High Pay Commission’s interim report, a chief executive at one of the UK’s 100 largest publicly quoted companies should be able to afford a house 145 times better than his or her employees.

This sounds amazing. What would 145 times better look like? Surely, one could really push the boat out for that kind of wedge? Quintuple-glazed windows, ermine-carpeted staircases, Cristal power-showers? Or you could go purely for size and buy an entire tower block, but that would be kind of tacky.

In reality, it is impossible to quantify better – houses are not like hamster runs, where an extra tube or straw-lined globe is a clear and measurable improvement to the standard unit.

. . .

Also, as much as it is entertaining to think of anyone’s home being 145 times bigger or 145 times better furnished, the practical hurdles are immense. There simply isn’t enough ultra-prime property on the market for all the top executives to live in a house that adequately matches their corporate muscle.

The gap in spending power does, however, raise an interesting point about the grip the country’s top executives could have over the property market if they chose to turn more of their financial arsenal towards it. If the corporate elite decided they wanted their wage superiority to be borne out in their home ownership, rather than on, say, engine size or Louboutins, the Joe Bloggs worker would quickly find himself priced out of the market. In extremis, the big financial centres of London, New York and Hong Kong would become luxury ghettos, with executives competing over who had the bigger street and the workers forced to lump it in commuter-belt favelas.

While it all sounds a bit like real-estate dystopia, there is a serious point insomuch as wealthy buyers are increasingly using bricks and mortar as a place to park their hard-earned cash. In big cities, in particular, money is pouring into property like never before as the rich look for safe-haven investments. The ripple effect to the wider market is pricing many locals out of city centres all together. And, while the satellite towns might not exactly be favelas, the transition of amenities from something like London’s West End to an out-of-town leisure and bingo centre would feel a bit dystopian.

But fear not. Some clever analysts at Savills have worked out that our bosses are not nearly as materialistic as they could be when it comes to house-shopping, and the chance of a FTSE 100 lackey finding their gaff is only a 145th as nice as that of their paymaster is some way off. Indeed, compared to their ostentatious counterparts in other capital cities, London executives are quite good at keeping it real.

By creating a theoretical “Special Executive Unit”, made up of typical home-owning workers and executives, Savills have been able to work out the ratio of the size of the bosses’ properties to those of the workers. In spite of sounding like a politically correct term for a boardroom, the SEU delivers some interesting results.

The bosses of companies in Shanghai, for example, are happy to live in somewhere with a gross internal area of slightly over 3,000 sq ft. Sounds pokey, and, at just twice the size of the average Shanghaiese workers’ apartment, it probably is. In Sydney, meanwhile, Australian top dogs have no qualms with showing who’s boss, taking up a whopping 10,000 sq ft – equivalent to eight times the average employee. At four times, London-based executives probably see themselves as a sophisticated middle ground.

So size matters. But property has clearly lost some of its clout as a status symbol. The days when the boss’s manor house could be viewed from his or her workers’ cottages as an imposing reminder of the power structure are, thankfully, gone. We have become a fairer, more equal and less showy society. Either that, or the corporate lairds of today do not need to use something as overt as house size to remind us of our place; they have line-managers instead.

Ed Hammond is the FT’s property correspondent

More columns at www.ft.com/perspective

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