Pay gaps reveal which companies to invest in
Research by MSCI into pay gaps between executive and rank-and-file workers in companies suggests that those with narrower differences produce better investment returns.
In its report – Income Inequality and the Intracorporate Pay Gap – MSCI notes that immediate performance objectives, such as maintaining dividends, share buybacks and quarterly earnings lead to short-termism, in which labour is reduced to a cost issue to be minimised, rather than be seen as an asset to create long-term value.
For investors, the evidence suggests that the issue could become increasingly important when determining which companies in which to invest; for example, income inequality is estimated to have increased in 63% of countries globally between 1980 to the current decade.
MSCI cites other evidence too, such as higher average profit margins for companies with lower intracorporate pay gaps in the 2009-2014 period, across all sectors except materials.
It said labour productivity was lower for companies with higher intracorporate gaps over the period.
And sectors such as US consumer discretionary that have among the highest intracorporate pay gaps could see investor returns impacted by movements advocating adjustments to minimum wages.
To read the full research click here: Income Inequality and the Intracorporate Pay Gap