http://www.fastcompany.com/online/28/ge.html
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Everyone knows how much money everyone else makes, because employees are paid according to his or her skill.

The problem is really with corporate longevity. Companies are like nations, in the beginning it’s all “egalitarian”, everyone helping each other take in the crops, make decisions etc etc. Then over time, specialized experts are brought in to manage. They didn’t help found the country but they now run it. Now their only compensation is money and power. Then there’s a whole class of people with money and power and the bulk of the citizens are not included. I think you are alluding to a corporate aristocracy. And like the problem with feudalism, there’s a revolution waiting to happen. I agree. I am just not sure what the true answer is. You can do profit sharing by ratio but there are employees who ride the real winners (how do you prevent remoras?). There are top performers who are Grade A morons and jerks.

I think you need to break a company into three layers for comp purposes. Theres the “workers” and these folks want security above all else. Wage workers basically. Same as a departments store, mill or tech shop. They want a job, security, benefits and vacation time. They expect to earn more this year than last year. They expect that they will earn more than the “new guy”. They do the bulk of the work. But, they are close to a commodity. So there should be an industry wide scale for their positions and a smart company has a proactive HR department that ensures all levels are in the middle to top range and the day to day needs are met. If there’s a stress bonus for new projects etc that rewards by incident (new project, everyone on it works like dogs for 5 weeks and they get a bonus and recognition). But these people are unlikely to want to be managment or entrepreneurs. To find the ones that do, that’s an HR function (find the gold!).

Middle Mgt: These are the ones who want more money for more responsibility. They want/like to tell others what to do, like to lead more than level one but still want the steady paycheqe and benefits. Basically a “worker with perks”. This should be where you see direct fairness principles applied. These are the people who have day to day contact with the “worker”. If there’s a conflict, poisoned atmostphere it’s likely to be at this level. So Middle Mgmt needs training (with more comp) and education to be better managers. They understand more of the gameplan and have more hand in how it happens. So IMHO this is the layer where there’s a direct ratio: 1 Manager with 10 Employees = 200% of employee wage. VP with 10 Mangers should get 200% of middle manager salary.

Now there’s Mount Olympus. These folks can be the Versaille or the Polit Bureau or the Roman Senate. You find the people who are public lightning rods, the board whipping boys, the Jerks, the golden boys/girls and foudners. There is huge risk for being there and making the calls but also there’s prestiege. The Board can be a patsy or a micromanaging hell. You don’t have traditional protection of the employee, nobody cares if you get canned for a dumb decision. Personality can determine your job stability. Back stabbing is lethal not a “sport”. Bad decisions can lead to jail time. Responsibility to shareholder is legal priority (not god, country or rule of law). Air is thin up here, and chance to go up is not good. Most top people are brought in , not grown there. There’s little contact with actual workers and disconnect occurs. Theres different motivations and conflicting reasons for doing things. Some management decisions may be good from a shareholder point of view but make no corporate sense whatsoever. Other decisions are arrogant and mean but the board ordered it. Senior execs are expected to fall on their swords. More access to the cookie jar means more cookies get taken. Hanging out with rich people makes you want to be richer than them. Job satisfaction is less tangible in a 9-5 context. Was it a good year? What about next three months. Today?? Who cares about today.. what have you done lately?

I think our corporations relfect our societal conflict between have more/have less. If a kid has more marbles than the other kids someone hates him. I HAVE NO CLUE how to make it permanently fixed. I do think a wise CEO worries about this though. Work was never intended to be a place where a person’s hopes and dreams and sense of self worth is maintained. Thats a white collar phenomenon. I guess we need to realise it’s just feudalism and there are lords, knights, bishops and serfs… how do you fix it without breaking it. How to break it and repair it without killing it or losing the good bits. Socialism isn’t inherintly bad, it’s just an ambition killer. Ambition is the desire to have more than someone else, do more, be more, appear to be more. It’s human. Why do it if not for your own benefit ?

Sorry for the excessive lenghth.. It’s a VERY good and important topic.

Rob

1. In accordance with the Meritocracy principle, compensation should include a risk premium. Specifically, founders and other early-joiners should get a higher potential reward — generally done in the form of equity / ownership — than late-joiners. After all, early hires are expected to contribute much more than most later hires. They are forming the company strategy and structure and culture, and doing that in the face of large opportunity cost.

2. “Bringing the high low”. This is not my aim. I am instead saying one must form an explicit philosophy on how egalitarian to be. As you suggest, the tough part about the CEO / mail clerk example is setting their baseline compensation ratio (10x? 100x?) and the potential for upside e.g. incentive pay. Far be it from me to prescribe ratios. But common sense says if the numbers get sorely out of whack with people’s sense of fairness, you end up with a sick work environment where a rich few act entitled and the poor masses become disenchanted because they see insufficient upside. I don’t want to work in a system rigged that way.

3. Money people / funding can muddle things up. My funding priorities: sweat equity first; angels second; venture capital third and only if truly required and appropriate to what the biz can generate.

Thanks for the thoughtful comments.

osh

Compensation has to be based on metrics for compliance reasons now (Sarbines Ox) so comparables are used. A CEO worth 100X a mail clerk.. um yeah. If the Mail clerk goes home and quits the company will barely notice. The CEO gets nailed with a DUI and company stock plummets. If you recruit a mail clerk, they know what their job is worth anywhere else. If you recruit a VP , they sure as hell know what their peers are getting.

I think the current system is broken, I agree with you. Not sure that bringing the high low is the cure. Some people are professional employees. Others arent.

Cheers.. GREAT BLOG DUDE

Rob
Victoria BC