Managing success

All together now

May 9, 2006

The increasing disparity between upper management pay and blue-collar wages is creating a downward spiral that only can negatively affect our economy.

Editor's Note: This column was prepared by the staff of Winning Workplaces, a not-for-profit organization that helps small and midsized businesses create better work environments.

During a Joint Economic Committee hearing in 2005, former Federal Reserve Chairman Alan Greenspan addressed a surprising topic: The widening gap between the rich and the poor. Greenspan painted a sobering picture that revealed not only a gap between the affluent and those living paycheck to paycheck, but two populations with vastly divergent financial futures.

He reported that 80 percent of the work force represented by nonsupervisory workers had seen little income growth. Conversely, the top 20 percent of supervisory, salaried, and other workers had bigger incomes than in the previous year.

Greenspan's concern over this issue shows the extent to which it has moved into the mainstream. According to Greenspan, it's an issue that has an impact on the very health and future of capitalism. The increasing disparity between the pay for upper management and blue-collar employees creates a downward spiral that only can negatively affect our economy.

Minimum Wage, Executive Compensation

To put things in perspective, minimum wage has remained at $5.15 for the last eight years. Advocates of increasing the federal rate argue that inflation has made minimum wage worth less today than at any time since 1955. As this issue is debated in Congress, executive pay continues to reach new heights.

According to The Wall Street Journal, the average CEO's salary is 475 times that of the average worker. In an increasingly global economy, an easier way to be competitive with costs would be to pay CEOs much less. The average CEO in Japan earns approximately 11 times what the average worker makes.

In an interview with The New York Times, Daniel J. Steininger, chairman of the Milwaukee-based mutual fund company Catholic Funds, said. "... Pay without performance has been tracked, and studies show an absolute correlation between excessive CEO pay and underperformance."

Compensation Best Practices

Over the years we have profiled a number of progressive leaders who understand the value of good employees and the importance of their contributions to the success of the business. No organization can be successful without committed employees. Progressive leaders consider the wellness of the business not only financially but in terms of worker engagement and satisfaction.

Many have had to make tough decisions to reduce pay, benefits, and head counts. The difference between these leaders and overpaid CEOs of the world is they do not view their enterprises as their own personal piggy bank. They understand that a business's long-term health is as vital to the people who keep it running as it is to those at the top of the executive ladder.

Small business employs the majority of U.S. workers and will continue to do so long into the future. Small-business owners can show their appreciation of employees' contributions with fair compensation and by rewarding them with salary increases during good times and sharing the pain during the bad. In short, small businesses value workers, a concept many major corporations in our country cannot seem to grasp.

Leaders in any company should look to their employees for ideas on how to become more efficient, productive, and profitable. The practice of treating employees with trust and respect has many implications. It means seeing your people as a resource and not just a cost. It means accepting the same kind of belt-tightening measures expected of front-line workers during the hard times.

Perhaps most important, it means making sure workers are partners in creating a successful business by showing them how they can make a positive impact on the bottom line and rewarding them when they do so.

According to John Mackey, CEO of Whole Foods who limits his pay to only 14 times the pay of his average employee, "We have a philosophy of shared fate—that we're all in this together." Indeed.

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