Saturday, 8 February 2020

Change the Ratio

I saw recently that Mark Zuckerberg had had millions wiped off his ‘fortune’ by a small dip in Facebook’s stock value.

Laving aside the morality of the vast fortunes of these tech billionaires, I wonder whether  one can create a truly engaged workforce when the leader of the organisation ‘earns’ so much more than the rest of the ‘team’.

“We are all in this together’ cannot really apply - there may be work teams carrying out key processes but I think it unlikely that there is one cohesive organisational team.

People often talk about the difference (in attitudes and culture) between the private and public sectors …. but I think there is much more difference between small and large organisations. ‘Organisation’ causes changes in relationships … and this is exacerbated by huge differences in earnings levels.

Of course, perhaps my attitude is the result of envy - but I don’t think so, Perhaps it is a UK perspective - possibly.

I am not sure whether one could set a limit on the earnings multiple of the leader compared to the lowest paid but I believe it should be lower than it is in many firms.

What worries me on a practical level is the degree to which senior executive’s strive for short term performance to improve their annual bonus, perhaps at the cost of poorer longer-term performance. 

1 comment:

BroadThinker said...

I believe that the difference in pay actually might increase productivity because the CEO (aka leader) becomes more of an idol in the eyes of the employees. And, this is important in terms of productivity and of increasing harmony.

On the other hand, although I do believe (contrary to the Starbucks CEO) that an economy skewed so it's more dependent upon the spending of the top 1% is sustainable, I don't think it's optimal. For example, if you take a step back, what happens to the money supply when a company or person makes a net profit? Well, they have more money. There is more money in its bank account. But, where did the money come from? Money is a physical object that actually exists. So, if money was received, it must have been given by someone else. In particular, money was funneled from one group to another. So, can everyone make a net profit in our society? How can it? There would be the need for more money, no? The answer is qualified yes. It can occur for example when money turnover is high so that the apparent money supply increases. But, usually, the money supply has to increase in order to accommodate the bigger economy; an increase in the turnover of money won't suffice. So, the Fed pumps money into the economy. Unfortunately, money goes to the biggest and solid companies first, not necessarily the best allocation.

In low-income areas, money is actually being removed from the local economy and moved to higher-income areas. This is due to the difference in the lower and higher incomes and required expenditures. This money advantage is even increased due to the fact that the money supply influx from the Fed disproportionately goes to extremely wealthy investors. The result is that in low-income areas, people literally don't have money in order to exchange goods/services. They want to work but they can't. During the Great Recession, bartering was even commonly relied on because of this absence of money.

So, to increase the overall health of the economy, money needs to be directly pumped into lower-income areas. Many towns in remote areas like the Midwest have a net import of goods/services. This means there is going to be a net export of money, leading to a lack of money to run the wheels of the local economy. This is one of the many deficiencies in current economic theory. I have yet to read any economist mention this factor.

To illustrate the seriousness of this effect, consider the monarchies of old. Peasants (aka low waged employees) were relied on as a major source of money and this group of people scrounged to pay their taxes. This created a group of people that couldn't achieve its maximum potential due to poor health, stress, lack of education, etc. It concurrently created a group of upper class who also didn't achieve its maximum potential as they simply relied on the work of the peasants. The growth rate during this time was abysmal.