UNDERPAID / OVERPAID..... Whether you are the CEO of a multinational corporation or flipping burgers at a fast food chain, your pay is not fair! While there are many different reasons why pay isn’t fair, in this post I want to hone in on two main issues: 1. Pay generally doesn’t equal contribution and 2. The widening gap between executive pay and average salaries. Pay doesn’t equal contribution The idea of equal pay is that individuals who perform the same work should receive the same remuneration. Everyone knows about the wage gap between men and women. Even though the gap is narrowing, data keeps showing us that on average women today still only earn 80% of the salaries their male counterparts earn. This one illustration very clearly shows that pay does not equal contribution, but the problem goes beyond the gender divide. There are many job roles and positions in which people earn more money and bonus payments that don’t reflect their contribution. I can think of so many examples: In restaurants where waiters bag the tips that people pay for the level of experience they have had. This experience includes the service as well as the quality of the food, but the chefs who contributed to the customer experience are often left out. Sales people receive a bonus payment for signing up new customers, but the contribution of marketing to attract potential customers is ignored. Oil company executives get big payouts when the oil-price goes up and increases profits, though they had little or nothing to do with the price of oil… Another reason why pay is not equal is that some people ask for or demand higher pay while others don’t. Your boss might think your job is worth $80,000 but if you are only asking for $50,000 then this is what you will get, while your colleague doing the same job is asking for $80,000 and is getting it. A big part of the problem is the lack of transparency where in most companies the salaries of your co-workers are very secretive. Ratio of Executive to Worker Pay American corporations were up in arms recently about a proposed rule by the Securities and Exchange Commission which would require them to calculate the ratio of executive pay to employees. Why? Well, possibly because it’s one thing to say your CEO makes $53 million a year, as does Ron Johnson of J.C. Penny. It’s quite another thing when you realize that his salary is 1,785 times higher than his average employee. And Mr. Johnson is not alone. A report found that the average ratio of CEO to non-supervisory employees in the U.S. has ballooned 1,000 percent since 1950. A rule requiring that you merely calculate your ratio seems awfully benign when compared to a Swiss law which states that an executives salary can be no more than 12 times that of the company’s lowest-paid employee. I see increasing calls and suggested regulations to set limits on the ratio between executive pay and average pay of full-time workers. Critics say that such regulation would potentially make it difficult to compete globally to recruit top talent. Ice-cream company Ben & Jerry’s have experienced exactly that. Their founder established a 5:1 ratio, meaning that the top boss could only earn five times the amount of the lowest paid employee. The problem was that it had to amend this ration to 7:1 and later to 17:1 because it was struggling to find new CEOs. So, What Do We Do? For me, the level of pay should either link to performance results or risk. Let me explain. We all know that when we invest our own money that there are potentially greater returns for when we take higher risks. I believe pay and reward should be linked to taking personal risks and job creation. That means, if someone takes the gamble of setting up their own business and in the process hopefully creates new job opportunities for others, then I believe that person deserves a really good paycheck. I believe that an entrepreneur who builds a new business that then employs many people who earn a good living from that business deserves millions. However, what I am not comfortable with is paying CEOs millions when: they don’t take personal risks because when they screw up they still walk away with a golden handshake. they don’t create new jobs or even fire many people. their employees get paid peanuts. The difficulty of determining the true contribution comes down to measurable results — I can measure the sales a sales person does but its much harder to measure the contribution the marketing person made in attracting the customer into the shop. It’s also harder to measure the unique contribution of a CEO when his success depends on the contributions that all other employees are making every day. But it’s not impossible. Each job can be matched with corresponding metrics of contribution and success. I believe that when it comes to pay we need more fairness and better transparency. I wouldn’t want to curb exec pay, but would like to see more openness and justifications why different people’s pay is not equal or why big pay-gaps might be appropriate. But what’s your view on this? Do you think pay is fair? Do you think exec pay should be reigned in? If so, what would be a fair multiple? Please share your views…
Posted on: Tue, 15 Jul 2014 05:48:53 +0000
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