Today’s Corporate America
..Is far from equitable to its employees from a wage perspective. Between CEO and the individual contributor the disparity in compensation versus economic need for money, is staggering.
Today’s basis for computing compensation is geared to ensure more the survival of the company than the survival of its employee. If it were to follow the reverse philosophy things could pan out differently. Employee compensation is more as a consequence or means to justify the end i.e. the survival of the company.
A CEO’s response and its interpretations
Lets deconstruct some of the recent points of view of some respected LinkedIn influencers who were quick to criticize Microsoft’s CEO Nadella’s response to a question and rushed to endear themselves with the other gender’s just cause.
One article stated, Quote:
Since 2009, corporate profits in the US have increased by 84 percent, one of the largest five-year increases ever.
In that same time, wages for American workers have increased by a mere 7.86 percent, despite record productivity. Never before in American history has there been such a gap between the percentage profits have increased in respect to the percentage wages have increased. Unquote.
This statistic didn’t look right, so the author investigated these numbers in a way that would make sense to even a teenager.
1. Why look at 2009 and not 2005? Is it because that was the year of the GFC when the profit of all companies took the worst hit..so you start at a pseudo low baseline making for a dramatic starting point? Is that justified?
2. It shouldn’t take a person with tertiary qualifications to understand that a company can pay higher compensation to its employees, if it has the money to pay. Simple enough? Ok, so lets see if indeed that’s the case. We are talking about gap between profit and wages right?
Err..lets look at the facts. In particular lets take Microsoft itself.
Shockingly, i found that the disparity between profit and wages might have actually come down per employee than it ever was.
From the analysis above for 2014, 172.45 KUSD net profit per employee is the lowest net profit per employee for Microsoft in 10 years! The only year it did worse was in the watershed year of 2005 which was a result of the GFC anomaly.
To its credit Microsoft has been contributing to reducing the unemployment rate in the world as well. Its workforce stands at 128 thousand from 93 thousand in 2009. A 38% increase in families who lived by the income from their jobs in Microsoft.
In other words, are the critics of Nadella giving us an accurate picture? The authors argue that increase in profit should translate as increase in wages of employees. What if the company uses the money to hire more employees? That’s why the ratio of profit to number of employees is a more neutral and accurate indicator of wage rise affordability than what the critic’s of Nadella are quoting. If they were OK with Corporate America’s compensation for decades how does a lady asking a CEO how to get an increase in wages suddenly trigger such an interesting awakening? Why should a relatively benign comment trigger such criticism? Where were you in 2005? Is there some other motivation behind such a critique?
I am not suggesting Corporate America is right. Perhaps not. There is room to do better always. Capitalistic liberty without some level of clear logic can be self-destructive. Ideally a family of husband, wife and two children is the known prevailing sustainable norm. Whether it is the CEO who has such a family or the Individual contributor, they both come to work to earn for this family. So one family unit taking home USD 30 Million annually and another taking home USD 24K annually to feed exactly the same number of stomachs, living in the same city etc…leads to social imbalance, the creation of schism and sows the seeds of discontentment. The CEO cannot function without the support of the Individual contributor. Hence in reality both are needed. The base of power alone should not be the deciding factor to determine compensation.
Key Intent of this post is to excite new thinking
So what is/are the alternative. The alternative might be to create a new more composite metric of economic entitlement. This should be a function of number of family members-limited to 4, non-output socio-economic impact, current job-role contribution etc.
Harvard, are you listening?
Disclaimer: The author has no links with Microsoft Corp in any capacity.