[This episode is a sequel to my earlier publication on LinkedIn: “After paying good salaries – what else?”, let’s explore the concluding part of the article on one area of remuneration – executive compensation – which has had its fair share of chastisement by various stakeholders including the political establishments.]
Spanning 1994 and 2013, a study was conducted by the University of Utah on pay at the upper echelons of corporate organizations. The findings of that survey toppled the venerable belief that high compensation (remuneration, rewards, salary or income) correlated with strong performance! It happened that the best paid CEOs in the U.S. actually turned in the worst performances as was measured by stock price which racked up average losses of about $1.4 billion per year in market value. One of the startling reasons pinpointed for the poor performance of the CEOs was argued by the researchers as “overconfidence”. The researchers theorized that the excessive pay levels made the corporate lords less likely to ignore evidence that ran counter to their plans. Such CEOs may suffer from the Diva Syndrome (tendency to believe they are superior to other workers) or Imposter Syndrome (a sense of being undeserving of the rewards triggered by high remuneration as noted by Psychologists Pauline Clance and Suzanne Imes). To this end, monetary rewards could be counterproductive and consequently disincentivize workers at all levels of the organization if remuneration philosophy, strategy, beliefs and principles of an organization are not aligned and acted upon to create sustainable gains for all stakeholders. But executive compensation belongs to a realm of rewards that is arguably enigmatic.
Six, top executive pay is profligate! Another misperception or reality? According to the Economic Policy Institute, the ratio of Executive Compensation (CEO Pay) to the least paid worker in the US for 1978 was 30:1; between 2016 and the last two years it hovered around 271:1. In the UK, according to the CIPD and the High Pay Centre, the ratio between CEO pay and average worker pay was 148:1 in 2015 and 129:1 in 2016, whereas around 1996 it was just 45:1. There are divided opinions on what is accounting for the astronomical increase in the ratio. This phenomenon does not gel with the philosophy of Prince William Ankrah, the firebrand trade Unionist who unapologetically calls it “irrational executive compensation logic.” Prince does not spare any opportunity in supporting the call to curtail the increasing ratio through co-determination (inclusion) and regulation. However, there are socio-cultural factors in our part of the world that must be considered. If you are pursuing a 6-figure monthly or 7-figure annual pay in typical fashion like Sir Martin Sorrell the UK’s highest paid executive until his exit from WPP in 2018, Jeff Bezos of Amazon, the rather conservatively paid Warren Buffet, Mark Zuckerberg of Facebook and Larry Page of Alphabet/Google (who have reclassified to be paid just $1), you must brace yourself to earn it by the size of your job and what you put into your time You can become a 6-figure income earner- yes, you can! C-suite jobs and 6-figure monthly salary jobs obviously offer better rewards and compensation, but the intricacies involved are riskier with bigger tighter accountabilities – to regulators, shareholders, the Board, employees, communities amongst other key stakeholders. So I largely agree with Stanford Economics Professor Nicholas Bloom who observes that being a CEO consumes your life, is super-stressful and has a heavy impact on the economy and the fortunes of the Company.
This brings me to the question – what is the basis for my basic salary? The short answer is that basic salary is essentially a function of the size of your job – not the size of your job title, not the length of your qualifications, not how long you have served in the organization and not a reward for loyalty (Those factors have their place in talent management). You are paid for the size of your job. In simple terms, your pay is supposed to reflect the level of problems your job is designed to solve.
Need I say that in certain types of organizations/ industries – like academia or research-oriented institutions, the setting of pay grade and base pay could largely reflect the academic qualifications and/or publications/ patents you have bagged. In a more production oriented corporate entity your pay is determined by your job size – the standard job specifications required to deliver a set of primary responsibilities / accountabilities and /outcomes. I have observed instances when a worker has been disillusioned on the basis of their long service and loyalty at the workplace because a “newer kid” on the block has been placed at a higher salary bracket than he/she is. Question is: what is the relative size of your job?
“Money is not a motivating factor. Money doesn’t thrill me or make me play better. I’m just happy with a ball at my feet … If I wasn’t paid to be a professional footballer, I would willingly play for nothing”, says Lionel Messi the Argentine and Barcelona Soccer Star and five times Ballon d’Or Winner. Just think about it for a moment – do you love what you do at work like a ball at the feet of Messi? Robert Half UK reported in 2017 that 31% of UK workers would take a pay cut for their dream job. The simple insight here is that 3 out of 10 employees are ready to risk a salary loss for an opportunity to pursue their passion. I have seen this on countless occasions as an HR practitioner. If you pursue a career, a job or dream that is aligned to your innate skills and talents, you will not have to worry about motivation – you will enjoy your work even when you sweat!
As Barack Obama noted, “Money is not the only answer, but it makes a difference.” Undeniably, cash benefits play extremely important roles in the world of work as part of the total rewards and remuneration practices. However, the game changing factor in securing sustainable motivation and a positively engaged human capital is not so much in the size of the paycheck as it is in striking a good balance with the these: the notion of fairness in setting pay across the levels in the organization; the perception of tolerable transparency in pay levels; aligning people skills with the kind of roles/jobs that make an employee truly come alive!; the notion of pay equity (including gender-based pay disparity) across all levels in the organization; the practice of flexible frequent smaller rewards that are non-routine and keeping a surprise element in your reward strategy amongst others.
At the end of the day, it takes managerial will, strategic remuneration planning and effective leadership to drive such changes that will cause a fantastic workplace!
Daniel may be contacted with comments on email@example.com