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High pay makes elitists view us as serfs

Written By: - Date published: 12:31 pm, November 9th, 2010 - 39 comments
Categories: business, capitalism, wages - Tags:

I’ve never really understood the logic of paying CEOs multi-million dollar salaries. Can Telecom’s $7m man, Paul Reynolds, for example, really be worth 100 skilled technicians? Is there no-one who is basically as good who would work for a million or two less? Now, research shows high pay gaps for CEOs actually makes them worse bosses.

“In a conference paper presented at the International Association for Conflict Management conflict in Boston last month, professors from Harvard, Utah and Rice universities argued that as executives get bigger and bigger pay packets, they begin to mistreat workers.

“Simply put, as disparity between CEOs’ compensation and ordinary workers’ income increases, the former become meaner to the latter,” the researchers wrote in ‘When Executives Rake in Millions: Meanness in Organizations’.

“Higher income inequality between executives and ordinary workers results in executives perceiving themselves as being all-powerful and this perception of power leads them to maltreat rank and file workers,” the researchers, led by Harvard University research fellow Sreedhari Desai, wrote.

Larger salaries and imbalances in power may also make CEOs “come to view lower level workers as dispensable objects not worthy of human dignity,” they wrote.”

I can’t understand why companies are willing to hand over so much money. I simply don’t think it stacks up to think that these high paid CEOs create a lot more value than a lower paid one would (in fact, there’s evidence that the opposite is true: higher CEO pay correlates to lower stock value)

Come to think of it, I can’t really understand why anyone would insist on being paid that much. No-one can spend $7 million a year without wasting it on frivolous stuff. After a certain point, incomes must become pretty meaningless in terms of the actual monetary value they entail. I guess that at those extremes, money just becomes a points game: ‘I’m better than Johnson because he is on five million and I’m on six’. You must have a personality that is missing something (altruism?) to take those kinds of paychecks: you can’t be said to need that money in any real way, yet by taking it you deny it to the workers or the shareholders.

Maybe that’s it – the decisions about CEO pay are being made by people with warped value systems. I read somewhere that the explosion in CEO salaries in recent years has been linked to the growth in ownership of shares by managed funds, rather than individual shareholders. It’s the heads of the managed funds who now appoint the boards who appoint the CEOs – they’re all drawn from the same (sociopathic) stock, and there’s no control from ordinary people (the serfs) any more.

39 comments on “High pay makes elitists view us as serfs”

  1. Agreed. Pretty much sums it up as I’d put it.

  2. George 2

    come to view lower level workers as dispensable objects not worthy of human dignity

    That’s your answer right there. It’s worth paying someone $5m if it turns them into someone who can ruthlessly squeeze $20m out of a workforce.

    • Colonial Viper 2.1

      It is patently undemocratic that the direction and major decisions of company with 2500 workers is decided by a group of about 20 board members and executive managers, who are the same ones most disconnected with the rank and file worker.

      Which is why you see decisions to offshore jobs taken with such regularity as people in the ‘in-club’ get to reap the bonus benefits as everyone else reaps their redundancies.

      • Kevin Welsh 2.1.1

        ‘In-club’, you the nail on the head there CV. Funny thing is, it doesn’t matter how badly some of these clowns perform, they keep popping up time an again in CEO or Directors roles.

      • SHG 2.1.2

        I also think it is patently undemocratic that the direction and major decisions of a military unit with 2500 solders are decided by a group of about 20 senior officers.

        • Colonial Viper 2.1.2.1

          This is civvy street SHG, don’t know about you, but 4.4M NZ’ers didn’t sign up to join the military last I looked.

        • felix 2.1.2.2

          SHG the military IS patently undemocratic, deliberately and necessarily so. It needs to be so in order to function properly.

          A large company, on the other hand, could function properly under many different organisational systems, and need not necessarily be undemocratic or even hierarchical.

  3. Colonial Viper 3

    What about civil servants and SOE executives who end up on $500,000 p.a. plus? They must fall prey to the same psychological trap.

    At remuneration >40x the NZ median full time wage, a 91% tax rate should kick in. A rate just like the good ol 1950’s and 1960’s in the US of A.

    If the business execs want more pay, then they will have to work harder on raising the median wage of workers.

    • Lanthanide 3.1

      If a salary cap were put in by law, it should apply to the specific company. Eg the CEO can be paid no more than 30x times the lowest wage in that same company. If you tie it to a national figure, then there’s really very little any individual company can do to reward it’s CEO, whereas if it is in the specific company, you can imagine a particularly successful company somewhere that the cleaners might get paid $45k to work at (and I’m sure they’d do a damn good job too, to risk losing the job to some other cleaner who is willing to work harder than them).

  4. Lanthanide 4

    “No-one can spend $7 million a year without wasting it on frivolous stuff. ”
    They can invest it into lots of other start up companies and create jobs. Rich people do actually do this (not as much as they’d like to pretend). Nice example is the proposed undersea cable by Steven Tindall, Sam Morgan and some others.

    • Draco T Bastard 4.1

      That’s the theory – doesn’t seem to work out well in practice.

      Now, just think what would happen if everybody had enough to invest a little at the end of the day rather than being on subsistence wages. Chances are you’d have more investment going on and in more diverse fields.

      • Lanthanide 4.1.1

        Sure, I agree.

        I’m just critiquing that specific line that says once you’ve paid for the necessities in life, there’s nothing left to do with your big stack of cash except waste it. Which clearly isn’t true.

  5. M 5

    Excellent Marty. I don’t know how this shite got so out of control because at the heart of the matter it’s just wankerism gone mad, kinda like guys who are LOMBARDs.

    I know someone who works in a government job on $175k who gets to flit around the country and overseas and has a very unattractive, imperious air about him – I’d hate to work for someone like that. The best bosses I have ever had have been ones who have commanded respect in the way they have treated their staff rather than demanded it by virtue of their positions. In an unbelievable stroke of luck I had one like this for four years whom I remember fondly as he defended his staff to the point of telling whingers to fuck off if they tried to put the boot into his staff, sought pay rises for all of us and tried to get the best possible training not only to aid the organisation we were working for but to develop us as individuals.

    These elitists with overinflated salaries who have ridiculous deference shown to them for nothing other than they get paid a shitload of money should be the first to mount the scaffold when a company does badly instead of being rewarded for failure and workers at the bottom being culled with the remaining demoralised staff having to cope with the stress of enormous workloads and possible burnout.

    Rest home workers, rubbish collectors, all workers in hospitals, teachers, shop and factory workers, utilities workers and all those who keep the wheels turning in this country deserve most of the slice of the pie where wages are concerned.

    Let’s hope that workers in this country wake up in time for the next election.

    Anyone can sit in an office in a flash suit and make daft, selfish decisions that imperil the whole country

  6. tc 6

    Nice piece Marty and having been in the corp game for a few decades now the stratospheric growth through the last part of the 90’s onwards initially looked unsustainbale but after a few years the bar looked normal as these mercenaries offshored/outsourced/rationalised/globalised the business and actually justified their pays by delivering the profits their boards relentlessly drove for.

    But now as diminishing returns, the outsourcers coming back to the field (as India etc raise their standrads of living and costs) combined with very limited rationalisation opportunities left (you can only swallow so many of your competitors) and the cost of borrowings made to acquire the competitors has now put these business’s back to where they started…….except with the huge packages still in place for the reynolds/norris/ferriers etc.

    Workers are forced into accepting change (do more, lose the job etc) but how often do you ever see the top table doing similar……tis a human condition called greed. There’s enough to go around except for the Mr Creosote’s of the corp world hogging much more than any normal person should be allowed.

    • Colonial Viper 6.1

      Workers are forced into accepting change (do more, lose the job etc)

      Labour must reorganise, in newer and smarter ways. With an aim of working constructively with companies and employers, to increase profits – and to increase the employees’ share of those profits. And if constructive contribution is not possible, to force agreements through direct and indirect industrial action.

    • Bored 6.2

      TC, you bring the faded memory of Mr Creosote spewing over the cleaning lady at th restaurant right back into focus. It is appropriate to this thread as thats exactly how it feels to have to pay for these pirates. I have watched elderly care workers who are paid sweet F A cleaning down dementia patients with loving care and attention, their tender mercies for their wards coming at a tiny fraction of the price of a corporate fat cat. Workers like this must view it as being puked on a la Creosote by a very warped system.

  7. B 7

    The elite isn’t only comprised of the private sector CEOs.

    By a similar logic, what if you linked the salaries of parliamentarians and senior civil servants to the minimum wage? Say, 4x for back benchers, 6x for Ministers & 8x for the PM. We’d soon see real progress on closing all sorts of gaps, even the one with Australia. Talk about performance pay!

    As the relativity of the elite (including MPs) has improved, they identify less and less with the needs and aspirations of middle NZ, let alone the underclass. Rather that being jealous of rich, they become resentful of the poor and focused on their trusts, rental portfolios and entitlements. What more effective correction could there be than one linked to the hip pocket?

  8. Jeremy Harris 8

    This is a failure of boards, many of who are also friends with the CEOs, on other boards together or are CEOs of other related companies… It is also a failure of shareholders to ensure boards are working in their interest…

    US billionaire Carl Icahn has lead many shareholder revolts in US companies and has installed CEOs on fractions of their previous CEO’s salary, many do a better job… He states the problem is that amiable yes men and those from the club get the CEO roles most readily…

    • Draco T Bastard 8.1

      It’s the failure of capitalism and free-markets.

    • Jeremy Harris 8.2

      Another amazingly original comment from you DTB, filled with verve and insight…

      • Maynard J 8.2.1

        But he is right. It is not a failure of the boards at all. They are there to make money for their shareholders, and if paying a small fortune to a ruthless sociopath does that, then they are doing their job and doing it damn well.

        The logical place to look would be the system that dictates maximising profit at the expense of anything else.

      • Colonial Viper 8.2.2

        Jeremy, you should have figured out by now that Boards of Directors will pay ample monies to a CEO who can maximise profits by minimising costs – even if that minimisation causes massive spillover costs on to wider societies, the environment, and local communities.

      • Jeremy Harris 8.2.3

        You guys don’t understand the point I am making…

        Boards are failing because they are, in some cases, installing CEOs at many times their worth and who in some cases lose very large sums of money and STILL receive bonuses… It is most definitely a failure of the boards to approve such contracts and a failure of shareholders to not hold the boards making these decisions to account…

    • Colonial Viper 8.3

      Not sure why you are taking the position that Boards of Directors – filled with extremely experienced and capable business people – would not pick the exact CEO that they wanted, and not remunerate that CEO exactly as they intended. They do, and they charge those CEOs with delivering results to institutional shareholders (not the small shareholders who are nearly always sidelined) in exchange for rewards of many millions of dollars.

      An example is Goldman Sachs. Massive toxic losses paid for by tax payers. But now back making massive profits every quarter. Even as the GFC continues to crash around the world destroying countries and trashing lives, Goldman’s CEO and his Board are more than happy after making US$3B in quarterly profits earlier this year.

      In summary – Misery caused, sovereign debt crises imploding, state layoffs multiplying, public deficits almost beyond control – and Goldman Sachs considers it a job well done with multi billion dollar bonus pools paid out to bank executives.

  9. Macro 9

    It’s a surprise that this obvious fact of failing business practice has taken so long to be demonstrated so clearly by academia.
    But tell it to the shareholders and Directors and they won’t believe you!

  10. It’s not just their own workers on whom they look down, it’s workers generally. Sometimes that doesn’t matter to the health of the company overall, as the CEO’s decisions are insulated from the majority of those on lower incomes (e.g. a business whose clients are primarily other businesses).

    But put such a person in charge of, say, a bank or a telco and their decisons – not to mention their thinly disguised contempt – almost inevitably leads to a backlash, even from the most complacent person-in-the-street – that can be highly damaging to the company overall, including shareholders (many far more wealthy than the CEO).

    The banks in Australia are about to find this out, with Wayne Swan finally prompted to do something other than fulminate impotently by the latest outrage – CBA’s (Ralph Norris) decision to raise mortgage rates by double the RBA’s rise; and prompted by the Liberal’s Joe Hockey putting up a private member’s Bill and receiving the backing of the Greens.

    Norris’s reaction – and that of ANZ’s CEO – to Hockey and Swan’s initial criticism was a study in patronising, single finger raising smugness. Not so smug now, though.

  11. RedLogix 11

    It’s not an original idea, but some months ago there was an interesting idea put forward by a regular here that CEO’s do in fact command their legitimate market price because their special combination of skill is rather rare.

    In reality only a few percent of people have the combination of intelligence, good presentation, experience and charisma to make a good CEO. In the old days they were called leaders and they earned the respect people gave them.

    But that was never enough for their capitalist masters…they require their servants to be able to make ruthless, brutal decisions, devoid of loyalty and compassion. The kind of decision that robs a normal feeling, moral person of their sleep. In addition to the skills needed to run the business, they need CEO’s to be sociopaths as well. Of the whole population, only 2-3% are sociopaths, and of these only a small fraction are high functioning sociopaths with the ability to mask their lack of empathy well enough to avoid being weeded out before they rise to positions of power.

    Very, very few people combine all these peculiar qualities. Of course they can command outrageous market rates.

    • Colonial Viper 11.1

      Very, very few people combine all these peculiar qualities. Of course they can command outrageous market rates.

      Because the Financial Lords (hedge fund owners, other institutional owners) demand that kind of behaviour and are willing to pay for it in order to maximise their own capital returns, regardless of the externalities those sociopaths may inflict upon the way.

  12. Drakula 12

    I think that their warped kind of logic goes like this;

    First it has nothing to do with the efficiency of the top man, but everything to do with climbing the corporate ladder.

    So here is what they do; they have already got all their rank and VILE top management on their tredley mill all willing to get to the top.
    Then the corporation offers the ‘best’ a lottery for a few years so that all the other obsequious rank and vile will do their uppermost to serve the corporate god.

    As for the man at the top well he doesn’t have to be efficient he may as well go fishing!!

    • Colonial Viper 12.1

      And as they suck in more value from their ordinary workers for no extra pay, cream more money in from customers, the few execs at the top get more pay.

      In other words the corporate overseers get handsomely rewarded for keeping the masses under the boot.

  13. john 13

    Another way they get huge salaries and bonuses is through tax avoidance and evasion,Plus Governments lowering the tax rate all the time.Read the NeoLiberal madness of the UK: Impoverishing their own people so the rich can party on!

    http://www.monbiot.com/archives/2010/11/08/the-lax-tax-pact/

    • Colonial Viper 13.1

      Don’t forget the Irish Govt which has spent over 50B euros to bail out Anglo-Irish bank and has turned a private debt crisis into a sovereign debt crisis. The people of Ireland are being crushed by the socialisation of losses as the bankers laugh into their champagne glasses.

      Their new plan to stabilise property prices and prevent additional banking asset losses?

      Bulldoze brand new empty apartments and newly built housing developments to try and reduce market supply.

      Frakin idiocy. The anger is palpable, all it needs now is the spark.

  14. KJT 14

    Not only does research show that higher pay makes worse bosses to staff. Research in both the UK and the USA as well as some by the NZ institute of Management shows the higher the executive pay rates the worst the company performs against normal KPI’s.

  15. KJT 15

    Not only does research show that higher pay makes worse bosses to staff. Research in both the UK and the USA as well as some by the NZ institute of Management shows the higher the executive pay rates the worst the company performs against normal KPI’s.

    There are some very interesting articles in NZ Management about CEO’s who know how to cut costs and boost shareholder returns shrt term, but have no idea how to actually make a business work.

  16. john 16

    More comment on the NeoLiberal madhouse of the US that the ACT-nat party look upto where 43,000,000 people exist on food stamps supplied by NANNY STATE,note that one WODNEY!!Chief member of the ACT Party FReak Show!
    plus NANNY STATE BAIL OUT OF SOUTH CANTERBURY!
    http://www.lifeaftertheoilcrash.net/Archives2010/CelenteLosses.html

  17. Gina 17

    High pay is a way to divide and rule. Those on these pay packets are loyal to an elite and will cover up any sort of financial or other scandal in order to stay in that club.

    The financial meltdown which has been brewing for years and was constructed by the elite has been forseen by many high up in the industry but instead of whistle blowing they take the money and stay quiet. The worse things get the bigger the salaries get.

    The pay is increasing as a type of bribe to keep those in power in a seperate club from the rest of us and keep a crazy system afloat. Its an incentive to keep their planned economic hit which they want to lead to a world currency going.

    We saw the start of this here in NZ with Ruth Richardson who in lowering benefits created a new class of people who couldn\\’t live on their income. Then we expanded our population putting pressure on rents and house prices to really kick the group at the bottom of the heap.

    That group has been largely Maori. Even now unemployment in NZ is mostly a Maori problem. I met an indian family recently who were from south africa and had to return as they couldnt get work. It seems the only way to get an interview here for indian people is to change your name to a European name. This is common knowledge in the Indian community. The couple I spoke to were lovely. The woman was a qualitified teacher and someone I would like to teach my kids, she was really nice but she refused to change her name and so couldn ‘t even get an interview.

    Many kiwis like to blame long term unemployed Maori for not having jobs but the truth is this sort of predudice may well be happening to Maori also. So they end up trapped on benefits that dont cover living costs and they cant hit mum or dad up for a loan because Mum and dad are poor also. Thats a recipe for crime. Kids with no treats cause mum and dad cant afford them.
    Sudden costs of moving house when the landlord sells or other problems and what do you do.
    And now the rich want to exploit the victums of government policy and prejudice by owning their incarceration in private prisons.
    And if you come from a poor group there’s no one to bail you out or buy you a car so you can get that job. You are lost. This must end.

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