Skip to content. | Skip to navigation

Personal tools

Navigation

You are here: Home / Matrix 4.1 (en) / Handbook / C4 Just distribution of income

C4 Just distribution of income

Goal of the indicator

The goal is just distribution of income. Remuneration should be oriented towards performance (=equal effort per unit of work time), responsibility, risk and need.

Prompt questions:

  • What is the lowest and the highest income in your company?
  • How high is the mean income?
  • Does a transparent internal payment scheme exist?

 

Evaluation table

Sub-indicator

First steps

(0 - 10 %)

Advanced

(11 - 30 %)

Experienced

(31 - 60 %)

Exemplary

(61 - 100 %)

Income divergence in the company

 

Relevance: high

Maximum divergence:

up to 20 employees: 1:8

20 to 200 employees: 1:10

over 200 employees: 1:12

Maximum divergence:

up to 20 employees: 1:5

20 to 200 employees: 1:7

Over 200 employees: 1:9

Maximum divergence:

up to 20 employees: 1:4

20 to 200 employees: 1:5

over 200 employees: 1:6

Maximum divergence:

up to 20 employees: 1:2

20 to 200 employees: 1:3

over 200 employees: 1:4

Minimum

Income

 

Relevance:

moderate

Minimum income must be oriented to the living costs of a country and a region (living wages). Reference values are 1,330 € (net) [9] for Austria and Germany and CHF 3,500 (net) [10] for Switzerland.

Transparency and institutionalization

 

Relevance: low

Internal transparency of the 10 lowest and 10 highest incomes in the company

Living wages at all locations; additional public transparency on the basis of statistical unequal distribution measures [11]

Binding definition of  maximum divergence which strives towards an exemplary degree (see below)

Implementation of all goals, mutual determination of salaries by employees (see good-practice examples)

 

Publication of all salaries

 

Definitions + Background

The income gap is increasing all the time. In Austria, the ratio of highest to lowest income is 1:800; in Germany it is 1: 5000 and in the USA it is 350,000 times the statutory minimum wage.[1] Within companies, the divide is constantly rising as well. In 2011, the average executive board remuneration of a DAX corporation was 54 times higher than the average gross income of that corporation’s employees.[2] Such divergences no longer have anything to do with performance or responsibility.

Numerous socio-medical studies show that the larger the inequality is, the “sicker,” the more insecure and criminal societies become.[3] While economic added value and gross domestic products have grown, average net incomes are stagnating in Germany and Austria.[4]

There are at least seven other reasons for opposing disproportionate inequality of income:

  • Performance. In business the performance mindset is a central evaluation criterion. Thousand-fold differences in income cannot be justified by it, however.
  • Equality of opportunity. If individuals accumulate billions and billions or inherit such money and 50 % of society’s youth are unemployed, like in Spain, or 37 % of them grow up in households which are dependent on unemployment benefits, like in Berlin, this shows that the liberal principle of equal opportunities for all has been abandoned. Of the 30 DAX-CEOs, only one comes from a working-class background.
  • Democracy. Economic power reflects itself in political influence as well. Possibilities for political participation and co-determination are lost if a few people earn thousand times what the others do.
  • Gender. The Federal Statistical Office (Destatis) reports that women who have the same employment relationship and level of education that their male colleagues do earn eight percent less.[5]
  • Health. If inequality exceeds a certain degree, cases of illness, depression, suicide, drug use and criminality rise sharply in society. Richard Wilkinson has published powerful statistical material which shows how an excess of inequality lessens everyone’s quality of life.[6]
  • Happiness. Beyond a certain point, increases in material affluence do not create any increase in life satisfaction. Always amassing more and more makes people un-free and isolates them from the underlying needs which they attempt to satisfy in this way.
  • Ecology. Extreme inequality causes a spiral of wanting more and more, but the ecological sustainability of the planet is limited. If we concede a right of existence to all human beings, it is not possible for some to pocket, possess and consume thousand times as much as the others.

 

Surveys show that about 90 % of the population in Austria, Germany and Great Britain perceive the current degree of social inequality as too large.[7] In business, the call for limits on excessive salaries is getting louder too.[8]

Definition of minimum income and living wages

Since the cost of living varies extremely from country to country and region to region, it is not sensible to define a uniform amount. For purposes of orientation, monthly minimum income for Germany and Austria should be   € 1.330 (net). This is oriented to the reference budget for expenses necessary to ensure social participation. Reference budgets calculate how high available income must be to ensure a decent standard of living which covers all essential needs for the country in question. These include housing, heat, food, transport and health care, among other things. In Austria a person between the ages of 25 and 51 living in a single household and fully employed requires a net income of 1,330 € to cover his/her basic needs; for a household with one adult and one child (8), the required income is € 1.840 [12]

 

In regions with divergent costs of living an adjusted value or regionally valid minimum wages, if higher, must be applied.[13]

Definition of income

In regard to distribution of income, this term is to be understood as the flow of money and real values which result in a final outflow from the company and an inflow into the private sphere of the employee in question. All components of income must be counted: fixed and variable remuneration, extra pay, bonuses, dividends. If not stated otherwise, income figures refer to 12 net monthly incomes. In countries/enterprises where a 13th monthly salary or 13th/14th monthly salaries are paid, this must be distributed evenly over the 12 regular monthly incomes.

Best practices

Examples of internal salary democracy

 

Examples of exemplary internal wage differential

 

  • Gea/Waldviertler 1:2 
    (Turnover in 2011: 15.5 mill. €/ 120 employees)
  • Gugler Cross Media 1:4 
    (Turnover in 2010: 6.8 mill. €/ equivalent of 76 employees)
  • Sonnentor 1:4
    (Turnover in 2011: 24.7 mill. €/ 170 employees)

 

Payment of civil servants as a positive example

The salaries of civil servants are transparent for the most part and the internal income divide is relatively small. Cf. link

Bibliography/Links/Experts

Wilkinson, Richard/Pickett, Kate: “The Spirit Level. Why More Equal Societies Almost Always do Better,” Alan Lane, 2009. Also see link and link

 Negative examples and background information:

 

Editors: Nonno Breuss, nonno.breuss@gmail.com; cooperation: Christian Felber, Christian Rüther, Otto Galehr, Jan Hunnius, Dominik Sennes


[1] Felber, Christian: “Gemeinwohl-Ökonomie,” Neuausgabe, Deuticke, Vienna 2012.

[2] Source: link  concerning Austria cf. Wieser, Christina/Oberrauter, Markus: Vorstandsvergütung und Ausschüttungspolitik der ATX Unternehmen 2008. Studie der AK Vienna 2009, pg. 1. To download go to: link as of 07/02/2012.

Further examples of excessive income ranges:

 

[3] Wilkinson, Richard/Pickett, Kate: “The Spirit Level. Why More Equal Societies Almost Always do Better,” Alan Lane, 2009.

[4] Brenke, Karl/Grabka, Markus M.: Schwache Lohnentwicklung im letzten Jahrzehnt. In: DIW Wochenbericht. Reallöhne 2000–2010: Ein Jahrzehnt ohne Zuwachs. Bericht 45/2011, pp. 3–15. To download go to link as of 07/02/2012.

[5] See link

[6] See: link or Wilkinson, Richard / Pickett, Kate: “The Spirit Level. Why More Equal Societies Almost Always do Better,” Alan Lane, 2009. [7] Hinz, Thomas/Liebig, Stefan, et al.: “Bericht zur Studie. Einkommensgerechtigkeit in Deutschland,” 2010, pg. 5. To dowload go to: link as of 14/02/2012.

[8] The founder of the World Economic Forum, Klaus Schwab, called for limiting remuneration of Executive Board members to 20 to 40 times the minimum wage paid by the enterprise in question. In Switzerland and Germany, possibilities for limiting such remunerations are currently under discussion.

[9] In reference to a single household. The value of a monthly net income of € 1.330 is oriented to the reference budget (or “living-wages”) as defined by the ASB (umbrella organization of the state-approved debt counselling agencies); see detailed definition below.

[10] This value was proposed by the Swiss pioneer enterprises. It takes into account the fact that the Migros Cooperative, for example, one of the largest employers in Switzerland, has introduced a minimum wage of 3,500 Swiss francs. Moreover, a referendum on the introduction of a legally binding minimum wage of 4,000 Swiss francs is in preparation. Compare the extensive argumentation formulated by the Mininum Wage Initiative Switzerland: link

[11] Such as highest, lowest and mean incomes, ratio between income of top 10 % and lowest 10 %. After close scrutiny, we found it too time-consuming to calculate the Gini coefficient.

[12] For a detailed breakdown in reference to Austria go to: link and for general information go to: link These figures, originally calculated for 2008/09, were increased 2 % p.a. Regionally differing costs of living are not taken into consideration here.

[13] Countries with higher minimum wages are Luxembourg (€ 1.800/month), Belgium, Ireland, Netherlands and France (data from Eurostat, July 2012). In Switzerland, minimum wages differ in individual sectors. The Canton of Neunburg anchored a minimum wage in the constitution for the first time in 2011. For a good overview go to: link