How Employees Pay for Executive Comp Excesses

There's a bit of a kerfuffle in the Internet biz news about a recent paper called, "When Executives Rake in the Millions: Meanness in Organizations." It was presented to this year's International Association of Conflict Management Conference by Sreedhari Desai of Harvard University, Arthur Brief of the University of Utah and Jennifer George of Rice University.

Their goal is to supplement the discussion about the relationship between today's executive pay levels and organizational performance. They turn instead to research on the impact of executive pay levels on executives' treatment of their employees. The findings are sizzling.

Here are a few:

• ". . . increasing compensation not only increases CEO's perception of how powerful they are but also affects the perceptions of the workers they manage."
• " . . . 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."

What do they mean by the "maltreat" reference in this quote and "meanness in organizations" that is used in the title of the paper? Well, a more objective description is that they " . . . investigated the relationship between the total compensation of an organization's CEO and the organization's relationship with its employees . . . " as measured by relations with unions, health and safety violations, reductions in force, retirement funding and employee relations initiatives.

Some of the "remedies" the authors propose are naive and ivory tower-ish, which has led to a couple of rants on the Web. No matter, it's the research findings that are instructive for us. We can figure out our own solutions, given the situation we find ourselves in.

The insights offered in this paper on the impact of power (exacerbated by Fortune 500 CEOs' average compensation having increased by 300 percent over the last decade) are well considered and immensely instructive. Especially since we know that the tough times will be with us for awhile and tough decisions will still challenge our leaders.

As the squeeze continues and the pressure is unrelenting, how much is our highly paid top managers' tendency to " . . . objectify lower level employees and view them as mere instruments . . . " influencing broad compensation issues like merit pay budgets and incentive design? It may be time to scrutinize our assumption that tough times demand tough decisions and examine whether there may  be a more balanced perspective that we haven't considered.

Want to think outside the box? Give this study a look, I think.

Margaret O'Hanlon is founder and principal of re:Think Consulting.  She has decades of experience teaming up with clients to ensure great Human Resource ideas deliver valuable business results.  Margaret brings deep expertise in total rewards communication to the dialogue at the Café; before founding re:Think Consulting, she was a Principal in Total Rewards Communications with Towers Perrin.  Margaret earned her M.S. and Ed.S. in Instructional Technology at Indiana University.  Creative writing is one of her outside passions, along with Masters Swimming.

Comments

[working girl]

So... if there's a connection between high executive pay and poor people management, and a connection between poor people management and poor company performance, can we infer a correlation between high executive pay and poor company performance?

[Margaret O'Hanlon]

Ah, but causation is quite another thing. No one's presenting data on that!

[E. James (Jim) Brennan]

See the annual Crystal Report, where Bud waxes eloquent on that exact topic every year.

[E. James (Jim) Brennan]

Maybe only old-timers remember Graef (Bud) Crystal from his days heading TPF&C's exec comp practice, long before he wrote "In Search of Excess," so here's a link to an article about his 2010 report on 2009 pay: http://www.businessweek.com/magazine/content/10_20/b4178070113216.htm.

[d_tro]

"... can we infer a correlation between high executive pay and poor company performance? " ... Yes in that those Executives have moved themselves to reward-first versus reward-last-if-at-all. Leaders lead from the front, from the rear, in the middle; rarely do they count THEMSELVES into the reward-mix at the end of the project or end of the year BECAUSE they are ALREADY well paid from a total-compensation perspective (re: Servant leadership - remember what that is?). Lead leaders!

[Margaret O'Hanlon]

d, thanks for a wonderful rant! I love your passion.

Jim, I worked with Bud back then, so know whereof you speak. My suggestion -- read both the Crystal article AND the report.

[Scott Es.]

Here's some ideas . . . Don't like where you work, how your treated, your bosses salary v. your own, your bosses treatment towards you, or all of the above; get a new job. Can't get a new job because of the economy; keep trying, get an education, or start your own business. Sick and tired about the disparity between managers, employees, etc., no one forces you to work anywhere. Just as you have the right to apply to any company you choose and accept that position if you wish, a business has the right to choose how they pay and treat their employees (within obvious limits ie, no beatings, whippings, etc). This is part of the reason why discovery through the use of tactful questioning during interviewing is so important. If there's "maltreat[ment] [of] rank and file workers" it will be reflected in corporate profits. This will either bankrupt the company in the long term, or better managers will recognize this and remedy the situation. Market forces whether it be through the acts of the "rank and file" or through the acts of managers always handle the situation. As I said, don't like the situation, change it or leave it. It's your choice in this free country. Lead by example, act morally, and quit complaining.