Better than What


Want a Brilliant Insight?

A moment's insight is sometimes worth a life's experience.

- Oliver Wendell Holmes

A point of view can be a dangerous luxury when substituted for insight and understanding.

- Marshall McLuhan

Source: Funny Times 2000 from the Boston Globe

Huge Pay Gaps: Enron and Beyond

We can have democracy in this country or we can have great wealth concentrated in the hands of a few, but we cannot have both.

- Louis Brandeis

Enron disclosed in court documents on Tuesday that before collapsing last year it paid out $744 million in salary, bonuses and stock grants to the company's 140 senior officers - an average of $5.3 million each.  The following IPA analysts commented on the disclosure:

There has been a wide range of government policies facilitating the rise in executive compensation over the last two decades, which were supported by both parties.  For example, when the Financial Accounting Standards Board wanted to require that firms list the cost of stock options as an expense against profits, Senator Joe Lieberman, Democrat-Connecticut, led the charge to stop the proposal.  This has allowed firms to dramatically overstate their profits on their financial statements, even while they deduct the cost of stock options for tax purposes.  Due to a lack of effective oversight, chief executive officers are often able to write themselves a blank cheque.  This leads to an economy characterised by fraud and outright theft.  The disparities between the money CEOs get and what the average worker gets have steadily been increasing - 1965: 20 to 1; 1978: 29 to 1; 1991: 56 to 1; 1999: 107 to 1.

Dean Baker
Co-director, Centre for Economic and Policy Research

You have people who are being rewarded for chicanery while others are serving life-long sentences for crimes that are minuscule in comparison.  There are people who are walking away from the table with multimillion-dollar bonuses for wrongdoing while others who followed all the rules are struggling to get their pensions paid...

Julianne Malveaux
Economist and columnist

"While the public, Congress, and even the stock exchanges have had constructive dialogues to prevent future Enrons, corporations like Enron continue to thumb their noses at change, as they deepen and extend corrupt executive compensation practices."

Scott Klinger
Co-director, Responsible Wealth

Klinger is the author of Titans of the Enron Economy: The Ten Habits of Highly Defective Corporations.  A chartered financial analyst, Klinger is a former portfolio manager at United States Trust Company

"Enron gave golden parachutes to failed executives while giving peanuts to thousands of laid-off employees.  Massive layoffs have often been rewarded by executive raises.  Chief executive officers of firms that announced layoffs of 1,000 or more workers last year earned about 80% more, on average, than executives at 365 top firms surveyed by Business Week.  These layoff leaders averaged $23.7 million in total compensation in 2000, compared with $13.1 million for CEOs as a whole.  The top job-cutters received an increase in salary and bonus of nearly 20% in 2000, compared to average raises in that year for US wage workers of about 3% and for salaried employees of 4%."

Betsy Leondar-Wright
Co-author of Executive Excess 2001: Layoffs, Tax Rebates, The Gender Gap; Eighth Annual CEO Compensation Survey, and communications director for United for a Fair Economy

Source: "Think Tanks Wrap-Up" © United Press International all rights reserved 19 June 2002

39 Times Better?

by Con Flinkenberg

Pay differentials.  Those of you who have stuck with me thus far will know that I am deeply disturbed by the way these differentials are opening huge gaps in our society and that I was provoked into discussing the issue by the reported comments of a human resource management lecturer, who was celebrating - and justifying - a survey showing that New Zealand chief executives had closed the salary gap between themselves and their Australian counterparts from 62% to 76% in a single year.

I told you that I thought the argument was special pleading.  Why did I say that?  (After all, it's seldom the chief executives themselves who are crass enough to put forward this argument on their own behalf).  The argument goes that, unless we pay these enormous sums, the commercial genius of our Country will be sucked, inexorably and unstoppably, out of our country.

The argument that we must "meet the market rate" is nonsense.  The large number of foreign chief executives in this country, attracted not by our salaries, but by our life style, is proof of that.  Hired chief executives are ordinary functionaries like any other hireling, and they are eminently replaceable.

There are cases on record where firms have gone to the wall because workers withdrew their labour.  I am able to unearth even a single example of a firm that collapsed because it had no chief executive (although many cases can be found of firms that collapsed because they had a particular individual as their chief executive).  As I said in my first column, if Paul Collins or Rod Deane had fallen under a bus any time in the last five years, they could have been almost Instantly replaced.

Is there evidence to support my position that defending these huge differentials is special pleading?  Perhaps not.  You will be gratified to know that recognition of talent is impartial.  It so happens that the same survey quoted above reports that there are two groups doing even better than chief executives in closing the salary gap with Australia (at 83% and 84% of the Australian rates).  Can you guess which?

They are of course the HR consultants and the marketers.  Is this a coincidence or what?

Enough of unworthy cynicism.  Let us examine the issue more impartially.  I have already quoted the example of the All Blacks to show how quickly the benefits of rewarding talent can flow through to the whole industry.  Without such an approach, who knows, rugby might have been forced into the humiliating position of having to rely on public appeals for charity to prop up the lower echelons of the sport, just as the Salvation Army appeals on behalf of the lower echelons of society.

Put the arguments about rewarding talent, or international competitiveness, to one side.  I hope I have made it abundantly clear that I consider them spurious.  Anyway, it's an old argument to which I have contributed nothing new.  Look instead at the message these salaries send about our society.

A handful of top secondary school principals can earn about $120,000 per year.  To do so, they usually must head a school with more than 1,000 pupils.  In other words, we consider that the contribution of the $1,300,000 executives is of greater worth to our society than the combined efforts of the 10 or so men and women who head our largest secondary schools and who every year mould and shape 10,000 young New Zealand minds.  Perhaps this is so.  But, again, this is another well-worn argument.

So what is my bottom line?  Why does the issue stir me so much?

The argument is that the salaries reward talent over mediocrity. Statistics New Zealand tell me that the average New Zealander earns a bit less than $33,000 per year.  Not an idiot, or an incompetent, or an idler, mark you.  The average New Zealander.  A salary of $1,300,000 implies that its recipient is 39 times more talented than an average New Zealander.

If that premise is true, then the premise on which we have built our country is false.

Source: Capital Times 11-17 November 1998

See also:

bulletWhat Makes Us Tick (in the section on Society and Culture) - for three articles on the relationship between envy to fairness along with a few cautionary observations...
bulletWhy Living in a Rich Society Makes Us Feel Poorer (in the section on Money and Politics) - to function effectively in complex social environments, we need ways to evaluate how we're doing and make judgments about how best to adapt to changing environments.  Such judgments almost always depend heavily on how we're doing relative to others in the same local environment...

CEOs Earn 262 Times Pay of Average Worker

New York - Chief executive officers in the United States earned 262 times the pay of an average worker in 2005, the second-highest level in the 40 years for which there is data, a nonprofit think-tank said on Wednesday.  In fact, a CEO earned more in one workday than an average worker earned in 52 weeks, said the Economic Policy Institute in Washington, DC.  The typical worker's compensation averaged just under $42,000 for the year, while the average CEO brought home almost $11 million, EPI said.

In recent years, compensation has been a hot issue with shareholders who have been bombarded with news stories about chief executives who are given multimillion dollar bonus and pay packages even if shares have declined.  For example, the chief executives of 11 of the largest companies were awarded a total of $865 million in pay in the last two years, even as they presided over a total loss of $640 billion in shareholder value, a recent study from governance firm the Corporate Library, found.

In 1965, US CEOs at major companies earned 24 times a worker's pay.  That ratio surged in the 1990s and hit 300 at the end of the recovery in 2000, according to EPI.  CEO pay is defined by the sum of salary, bonus, value of restricted stock at grant and other long-term incentives.  Worker pay is hourly wage of production and nonsupervisory works, EPI said.

Source: 21 June 2006

Relative Satisfaction?

If you don't have any money, the problem is food.  When you have money, it's sex.
When you have both, it's health.  If everything is simply jake, then you're frightened of death.

- J P Donleavy

According to Flow: the Psychology of Optimal Experience by Mihaly Csikszentmihalyi, satisfaction increases only slightly with higher earnings.  (He said that 100 multi-millionaires in the United States rated their emotions no differently than did 100 average Americans chosen at random.  Presumably the same would be true in New Zealand.)

Statistics show satisfaction increases with the status of a person's profession.  Among unskilled workers, there is a widespread dissatisfaction.  Unemployment has a high correlation with discontent, apathy, and fear of loss.

It seems to be that this (job = value to the community) summarises one of the most significant dilemmas of the modern family: Just how important is the position of wife and mother?

Of course the position is likely extremely important to husband and children - at least for a period of time.  And that's the rub.  Even the best mother in the world has only a temporary job - and it isn't a job that's preparing her for a promotion to something more significant, nor is it usually building her pension fund.

See also:

bulletWhy the Most Important Job Is the Least Valued (in the Wellington section) - "People say it's the most important job in the world but utter lip service is given to it," said Crittenden, who gave up her job at the New York Times after she had her son.  One of her fantasies is that in decades to come an employer interviewing a mother will give her credit for the time she spent raising children, just as soldiers were rewarded in the workplace after returning from a tour of duty.

Studies Show Pay Not Linked to Performance

Kiwis expect a fair day's pay for a fair day's work.  But that might not always apply to the bosses running some of New Zealand's largest businesses.

Two soon-to-be-published university studies conclude there is little, if any, link between chief executives' pay and the performances of the companies they run.  Instead, top executives are likely to be rewarded according to the size of their business.

The findings come as the sharemarket wallows at a two-year low after a string of dismal corporate performances through the 1990s, when New Zealand was unable to shake off the debilitating knocks of the sharemarket crash in 1987.  Last year alone, the sharemarket's top 40 companies shed an estimated $1.8 billion of shareholder wealth, according to ANZ Bank research.

The chief executives of large companies (with more than 1,000 staff or annual revenue exceeding $250 million) enjoyed an average 9% increase in base salary and benefits in the latest June year, according to PricewaterhouseCoopers' remuneration survey.

As executive pay rates increased through the 1990s, the stock response from directors and recruitment agencies was that New Zealand competes globally for top executives and it must pay accordingly.  But the howls of protest grew after companies were forced to disclose senior executives' remuneration each year (in bands of $10,000) from July 1997.

In some cases, there appeared little link between pay and performance - in contrast to the United States, for example, where typically half of a chief executive's package is tied to performance.  It meant some of the best chief executives were being underpaid, while some of the worst performers were almost certainly being paid too much, according to executive recruiters.

Separate research by Massey and Otago universities now adds weight to that argument.  "No significant association is found between chief executive remuneration and... performance measures," a paper by the commerce department at Massey's Albany campus says.  "Perhaps not surprisingly, this research shows that chief executive compensation is positively related to company size, use of leverage (borrowing), and business risk."

The Otago University paper, to be published by its finance department, also concludes that chief executive remuneration depends mainly on the size of an organisation.  Analysing a sample of 50 companies listed on the sharemarket, it finds no relationship between the pay of chief executives and the sharemarket performance of their companies.  "We also find no evidence of any relationship between chief executive pay and governance and ownership structures.  Instead, the sole determinant of variations to chief executive pay appears to be size."

Since companies were forced to disclose executive pay, the associated public scrutiny appears to have encouraged many companies to reform remuneration structures to more accurately reflect performance, the Otago University research says.

ANZ corporate finance and private equity head Joseph Healy, who co-ordinated the bank's research on shareholder wealth erosion, says chief executive pay is too often based on the size of a company's balance sheet, with too little of the package "at risk" according to his or her performance.

In New Zealand, chief executives can expect their guaranteed base salary to make up at least three quarters of their total remuneration, compared with 50% or less in the United States, Mr Healy says. - The Dominion

Source: The Press Christchurch Saturday 28 October 2000

"We Are Overpaid," Say US Executives

by Francesco Guerrera

Most US corporate leaders believe chief executives are overpaid and do not provide value for money for their com­panies according to a study that will embolden critics of excessive compensation.  The findings - published by the National Association of Corporate Directors - are likely to strengthen calls by investors and politicians, including George W Bush, US president, for restraint on executive pay at a time of growing income inequality in the US.  Top executives’ criticism of their peers’ compensation levels could also encourage activist investors and hedge funds to target underperforming companies with highly-paid leaders at shareholder meetings.

Four out of 6 chief executives or company presidents polled by the NACD in July and August said the compensation of top executives was high relative to their performance.  Only 2.2% of the nearly 70 chief executives and presidents involved in the survey said compensation was too low, while 1/3 deemed it "just right."  Their views were backed up by outside directors, with more than 80% of them saying chief executives were overpaid.

"There is an overall realisation that executive compensation is an area that boards and management are struggling with," said Peter Gleason, chief operating officer of the NACD.  The issue is particularly sensitive because the gap between rich and poor in America has reached its widest point in more than 60 years.  Figures released last week showed the share of national income claimed by the wealthiest 1% of Americans had reached 21.2% - a postwar record - partly because of booming company profits.

Mr Bush last week told The Wall Street Journal that he thought some executive compensation was excessive and that some boards needed to improve their oversight of this.  Nearly 60% of the directors polled by the NACD said the reason for excessive pay packages was the absence of objective ways to measure an executive’s performance.  Nearly half criticised the use of options and equity awards that reward executives when the company’s share price goes up, rather than when its operations improve.  Plus, investors have become more vocal in attacking what they often call "pay for failure" - large severance packages awarded to ousted chief executives.

Source: 14 October 2007 © The Financial Times Limited 2007

Even at Work, Pretty People Advance Faster than Plain

by Chad Graham

We would like to think real-1ife workplaces are bastions of professionalism that reward employees based on smarts, experience and all-around talent - where men with chiseled chins or women who could walk a Dior runway are nice cubicle eye-candy, but that doesn't mean they should advance faster than the test of us.  In reality, pretty people pretty much win all the time - not just in careers where perfect appearance can be contractually bound, such as TV news anchors and movie stars.  For decades. psychology research has shown that attractive people have a better chance at getting hired, getting promoted, getting the permission of bosses to embark on ambitious projects, landing more clients and getting a fatter paycheque.

The New York Times reported this summer that upscale clothing stores, boutique hotels and cosmetics companies always searched for trendy and beautiful employees but now unabashedly recruit members of fraternity or sorority houses or gorgeous customers standing in line.  Being ugly also puts a dent in a paycheque, said Daniel Hamermesh, a University of Texas at Austin economics professor who studies the effects of beauty in the workplace.  In a study conducted a few years ago, he found that the least attractive one-sixth of men in a company can make 10% less than average-looking men.  The top third most attractive men in a company can make 5% more money.  Women experience similar effects. Hamermesh deems it the "plainness penalty."

"There's a whole variety of reasons why," he said.  "We just think attractive people are better people or customers are willing to pay more to deal with better-looking people.  All of this is done by bosses, fellow employees and customers." Hamermesh doesn't have a concrete definition of beauty, but the people he studied defined symmetrical facial structure as attractiveness.  Obese people were not seen to be as qualified as thin people.  (Slight weight gain didn't seem to make a difference.)

Here's the Beauty Catch-22 for many companies - is it illegal or just good business to hire good-looking people?  Being ugly isn't against the law.  Workplace discrimination lawsuits must be based on such protected categories as race, sex, physical disability or religion.  If hottie workers bring in more business because they are more appealing to clients, why wouldn't a company hire them over someone who is dowdy and hasn't gotten a haircut during the past decade?  Unfair?  Yes.  Illegal?  Probably not.  "There really isn't legislation out there focussing on attractiveness per se," said Comila Shahani-Denning, an associate psychology professor at Hofstra University in New York who has written on the effects of beauty in the workplace.  "People haven't taken the issue very seriously.  I don't know if it's an issue that people may feel uncomfortable talking about."  Shahani-Denning, also a consultant for human resource departments, encourages companies to hire candidates based on qualifications other than looks.

"Æesthetics is valued highly in society and it's part of the initial impression when you meet somebody, and you have to really train yourself as an interviewer to look beyond the package and look at the performance issues," she said.

Source: Daily Record, Morris County, New Jersey, Monday 27 October 2003

See also:

bulletRules of Attraction (in the section on Money and Politics) - Is it worthwhile to lose weight?  Consider this: In 1992, the individual net worth of an obese woman (defined as having a "body mass index" of more than 35) was, on average, 40% lower than that of a woman of "normal" weight, after adjusting statistically for factors such as age, education, professional status, marital status and health.  By 1998, the economic penalty for being fat had increased: the net worth of the obese woman was 60% less than that of her slimmer sisters...
bulletBad News for the Plain and Ordinary (in the section on Society and Culture) - With every man vying for the attention of the most beautiful women, an averagely attractive man was almost as likely to be lumbered with Miss 900 as he was to get Miss 200 in his top 1,000 list...
bulletHouston, We Have a Big Problem (in the Lifestyles section) - "Yes, Houston is fat, but so is every other city.  We are a fat society.  Period."  In fact, 61% of Americans weigh too much, and about 27% of them are obese - 30 pounds or more over a healthy weight, according to federal statistics.
bulletEnhancing Human Traits (in the section on Drugs) - ethical and social implications

Real-Life Dilbertisms

  1. "As of tomorrow, employees will only be able to access the building using individual security cards.  Pictures will be taken next Wednesday and employees will receive their cards in two weeks."  (This was the winning quote from Fred Dales at Microsoft Corporation in Redmond, Washington)
  2. "What I need is a list of specific unknown problems we will encounter."  (Lykes Lines Shipping)
  3. "E-mail is not to be used to pass on information or data.  It should be used only for company business."  (Accounting manager, Electric Boat Company)
  4. "This project is so important, we can't let things that are more important interfere with it."  (Advertising/Marketing manager, United Parcel Service)
  5. "Doing it right is no excuse for not meeting the schedule.  No one will believe you solved this problem in one day!  We've been working on it for months.  Now, go act busy for a few weeks and I'll let you know when it's time to tell them."  (R&D supervisor, Minnesota Mining and Manufacturing/3M Corporation)
  6. My Boss spent the entire weekend retyping a 25-page proposal that only needed corrections.  She claims the disk I gave her was damaged and she couldn't edit it.  The disk I gave her was write-protected.  (CIO of Dell Computers)
  7. Quote from the Boss: "Teamwork is a lot of people doing what I say." (Marketing executive, Citrix Corporation)
  8. My sister passed away and her funeral was scheduled for Monday.  When I told my Boss, he said she died on purpose so that I would have to miss work on the busiest day of the year.  He then asked if we could change her burial to Friday.  He said, "That would be better for me."  (Shipping executive, FTD Florists)
  9. "We know that communication is a problem, but the company is not going to discuss it with the employees."  (Switching supervisor, AT&T Long Lines Division)
  10. We recently received a memo from senior management saying: "This is to inform you that a memo will be issued today regarding the memo mentioned above."  (Microsoft, Legal Affairs Division)
  11. One day my Boss asked me to submit a status report to him concerning a project I was working on.  I asked him if tomorrow would be soon enough.  He said, "If I wanted it tomorrow, I would have waited until tomorrow to ask for it!"  (New business manager, Hallmark Greeting Cards)
  12. As director of communications, I was asked to prepare a memo reviewing our company's training programs and materials.  In the body of the memo in one of the sentences I mentioned the "pedagogical approach" used by one of the training manuals.  The day after I routed the memo to the executive committee, I was called into the HR director's office, and told that the executive vice president wanted me out of the building by lunch.  When I asked why, I was told that she wouldn't stand for perverts (pædophiles?) working in her company.  Finally, he showed me her copy of the memo, with her demand that I be fired-and the word "pedagogical" circled in red.  The HR manager was fairly reasonable, and once he looked the word up in his dictionary and made a copy of the definition to send back to her, he told me not to worry.  He would take care of it.  Two days later, a memo to the entire staff came out directing us that no words which could not be found in the local Sunday newspaper! could be used in company memos.  A month later, I resigned.  In accordance with company policy, I created my resignation memo by pasting words together from the Sunday paper.  (Taco Bell Corporation)

Source: The Dull Men's Club - anything but.  Check them out.


Egotism is nature's compensation for mediocrity.

- L A Safian

There is nothing so useless as doing efficiently that which should not be done at all.

- Peter F Drucker

Only the mediocre are always at their best.

- Jean Giraudoux

Not doing more than the average is what keeps the average down.

- William M Winans


For articles related to working including why, which career, bosses, time constraints, focus, trends, gender issues, pay differentials, getting laid off, getting re-hired, dependents, part-time work and balancing work and values click the "Up" button below to take you to the Index page for this section on Working.

Back Home Up Next