There was a bit of new in Helsingin Sanomat recently about how the compensation differences between the executives of large publicly listed companies and average salaried employees is diverging at a great pace. According to the article, the salaries and bonuses of executives rose from about 649 000 euros in 2006 to 722 000 euros in 2007. In the same timeframe the average employee's earnings rose from about 33 000 euros to 34 000 euros. And this has resulted in tons of bitching and moaning.
To be honest, I can't understand the criticism that is inflicted on the executives. They may be making tons of money, but how is that anyone else's issue besides that of the executive and the board, which in turn is acting on behalf of the owners. In publicly listed companies the main objective of the company is to increase the wealth of the owners. It really is as simple as that and I don't see a point why this should be made any more complicated. Granted, you can extend that to suggest that maybe the purpose of the company is also to create a better, greener future and so on. But even still, when the day is over and the shit hits the fan, the reality is that if the company isn't increasing the wealth of the owners, the owners are pissed off and will demand changes. And in a situation like this, the owners have the mechanisms to drive through changes.
But apparently companies do in fact increase the wealth of the owners. There was some study that I saw a while back (sorry, can't remember where, but I'll post a link if I stumble on it again) where it was shown that if you consider the increase of executive compensations over the years and plot it against the wealth increase of owners, the owners win hands down. Why aren't the people demanding that the owners be stripped of their excessive capital income! It's amazing, since the owners don't necessarily even do any concrete work with the company, yet they are the ones reaping the biggest benefits! And if they decide to compensate an executive, it is their business, not the business of the general public. In light of this, I in fact think that the practice of the Finnish tax authorities to disclose income information to the general public is sort of silly. What purpose does it serve besides helping people whip up a rage when they notice that some people are earning more money than they are. Sometimes even very much more.
The bottom line, however, should be that the rules of the game are clear to everyone. Some people get dealt a better hand from the outset, others may get lucky and succeed for other reasons and the rest of us will have to rigorously work and study and work some more if we want to climb higher up. And that is fine and everyone should understand how the game works. If you aren't earning as much as you want to earn, then maybe you should do something about it instead of moaning about how some people who have most likely done a lot more work than you are now reaping the rewards.
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About Me
- ttj
- Helsinki, Finland
- The author is shallow, wears Valentino suits, but steers clear of Oliver Peoples eyewear. He can occasionally be seen wondering around the Helsinki University of Technology campus in search of a degree. At other times he's looking for meetings at Nokia.
2 comments:
I think you see it from the wrong side, as we have seen several times with you in the channel. You bloody capitalist. :P
At least here in Germany, the higher wages are usually brought into perspective with the execs moaning about how they need to be able to compete with others, while at the same time laying off several thousand people AND raising their wages.
People here are *especially* pissed, when this laying-offing comes as a direct result of a *very* stupid management decission, and then this manager either stays and gets a raise, or the board decides to kill him off to show "how much they feel with the lowly worker" - and give him his "well earned" (How?) parting-pay of several million euros.
Just take a look at Siemens.
So, as one can see in the end, those bitching and moaning people - who should be glad that they have a job - actuall DO have a very good point. Unless we talk about two totally different bitching and moaning people. Or different bitching and moaning. Which is possible :P
One possible issue here might be that people are inherently inflexible and what is going on right now is that the developing nations are coming to play and the laws of comparative advantages are forcing the overall landscape to change. Also, the inflexibility and new, changed working environment (people switch jobs more often, no fixed permanent single job from which to retire, etc.) are now so parallel that some sort of recalibration is required.
The pain could further be increased by the protectionist stances that the west has previously taken, which has allowed "sick" industries and practices to remain intact. But now the gravity has become too powerful and an inevitable move towards a new equilibrium is something that can no longer be prevented with tariffs and whatnots.
And ultimately, if the company is functioning badly enough, the owners should be able to have the power to step in and demand healthier practices and increased profits. If they cannot and the company remains to achieve sub-par results, mechanism like the nice private equity blokes are in place to capture an ill company and turn it around.
But anyway, I would hesitate to condemn the current situation and I certainly wouldn't make rash decisions affecting this area without deeper understanding. It might be that the system has been inherently sick and the pain that is now being experienced is that of getting better. Sort of like when you're ill and a fever rises, the fever isn't inherently bad since it's just a message that your body is fighting to win over the situation and get better.
However, the points you made were good and I guess at least a question of "what is enough?" in terms of efficiency and competition might be very relevant.
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