Introduction: decompression in the development discourse
The US Securities and Exchange Commission is consulting on a proposal to require public companies to report the ratio of top executive compensation to the median compensation of their employees. ‘The gap in pay between chief executives and rank-and-file employees has been growing steadily, and now regulators want companies to tell investors just how wide it is,’ said the New York Times in its recent report.
Yet the essence of the SEC proposal is at odds with the way we have approached public sector pay reform in developing countries over the last twenty years or so. During that time, Bank and Fund reports have routinely focused on the ‘compression ratio’ – that is, the differential between the highest and lowest paid employees – and habitually recommended decompression. See, for instance, this IMF Technical Note which includes the compression ratio among the indicators to be used for evaluating government employment and compensation. Altering the ratio in favour of the highest earners would boost performance incentives for all, it was thought. A World Bank report for Timor Leste from 2011 is a typical example: