A Small Step in the Right Direction
How to create shared value

Widening Earnings Gap - A Growing Problem

Remuneration for FTSE 100 CEOs is now 88 times the median UK wage. (Source: Will Hutton Fair Pay Commission .) This has grown from 48 times ten years ago. This is a problem.

Unfortunately, there is not yet wide enough recognition of that fact.  Does any individual justify earnings so much greater than the rest of the people in his organisation? After all, an organisation is a collection of people who together enable it to fulfil its purpose. Nothing is possible without their combined efforts. Success or failure then is a collective achievement.

Now of course nobody is saying that they contribute equally. Some have greater skills and so make a greater contribution than others. The CEO is certainly one of those. You rightly recognise that by paying them more. But is an 88 times earnings differential really justified?

Think for a moment about BP. Tony Haywood was one of those CEOs. Yet he was not directly responsible for losing BP nearly $20 billion (and that is before any possible legal damages arising from the lawsuit.) As far as any one person can be held responsible it would the middle manager who failed to take the appropriate action on a rig that was known to have problems. Perhaps this is an extreme case, but my point is that while any CEO shapes the culture he alone does not determine events. Others daily make decisions that may have far more far-reaching consequences than any he makes. Decisions that can make or break the organisation. Decisions that can affect thousands (or in the BP case, millions.) Decisions that can cost lives. Yet those people might not even be very high up the organisational hierarchy. And they might not even be earning much more than minimum wage.

A competitive world, where speed of response is everything, pushes decisions further down the line. Surely then the earnings differential should be going down and not up?

Wage inequality These same executives even profess that they cannot do anything without their people. Yet they cannot seem to understand that this earnings gap is one reason why employee engagement is deteriorating. The picture explains why!

In all honesty, how can CEOs justify their remuneration?

The truth is executive remuneration has become a competitive field in its own right. And that competition has caused salaries to skyrocket. And in the process common sense has flown out of the window. This cannot continue. It is time to find a new process that is more equitable. That way they can still be paid more, but in line with everyone else. Employee ownership would ensure this, while also cementing employee engagement that ensures success.


The comments to this entry are closed.