Fairness is not a demand for equality or pay caps. It is a demand that pay should have a just, proportional and deserved link to the contribution that has been made. If a footballer earns £200,000 a week but scores or assists 30 goals a season, our eyes may roll at the sheer scale of such a reward, but our judgement is also shaped by the knowledge that rich football clubs, and their fans, want the results. Clubs are bigger, global TV audiences huge, competition more intense, success much more valuable. Top footballers’ pay may in part result from an arms race for the best, along with a modicum of sheer greed, but in part it is deserved. It is the same story for executives who transform a company.
What prompts anger with executive pay is the belief that it has risen far too fast for far too long with too little justification or relationship to the right kind of performance. Shareholders and society alike want – or should want – executives paid well to build great, purposed companies over time. Instead, the incentives are too much oriented to delivering a high share price in the immediate future, encouraging corner-cutting to get there.
For the trouble with a pay cap – or even softening it as a target upper limit of the ratio of top pay to average pay – is that deciding what it should be is wholly arbitrary and deeply contentious... You can make an argument for ratios of 5:1, 20:1 or 50: 1, but the reason why so few companies (even John Lewis) or societies (even communist China) make the chosen ratios stick is because the ratio is so arbitrary and itself courts unfairness.
The only viable way forward is to create the best justification process possible, along with the best-designed incentives to produce results that everyone is proud of, as the Purposeful Company taskforce argued in its interim report on pay last November.
I respectfully disagree. How can it be fair when an actor is paid more to pretend to be an astrophysicist in a half-hour episode than most real astrophysicsts earn in a lifetime ? How can it be fair that the head of a bank walks away with a multi-million pound pension after leaving it in a worse state than he found it ? How can it possibly be fair to pay someone enough money to buy a house every week for kicking a ball around a field ? No, pay caps may be unfair, but they are a lot less unfair than paying people obscene amounts of money which could have gone (directly or indirectly) to people doing much harder work for less reward. I'd really like to see a company do a trial of a maximum pay ratio....
https://www.theguardian.com/commentisfree/2017/jan/15/pay-cap-unworkable-detracts-from-fair-society
Frankly, the goal of sensible salaries won't be a achieved by pay caps, but by society that values what really matters. In our current society, we compete for attention - not for competence. Storytellers rule.
ReplyDeleteDifferent concepts of fairness.
ReplyDeleteAs a parlour trick, many years ago when my children were still toddlers, I'd ask "What's Rule #1?" They'd gleefully shout "Life is not fair!"
ReplyDeleteWho gets to say anything's fair? Whose rules are in effect? Boards of directors don't care about the long term health of a firm or its role in a wider world. They care about the stock price. If a CEO can raise the stock price on a publicly traded firm with a huge market cap, say AAPL with a market cap of 623.28B USD, he's supposedly worth every dollar he's paid.
There's an obvious answer to the compensation conundrum: in firms over a certain size, workers are installed on the boards of directors.
en.wikipedia.org - Codetermination in Germany - Wikipedia
Pay caps are absurd. Fairness is absurd. Nobody's impartial. Everyone thinks his/her standard of justice is the right one. If we want some measure of sanity in our lives and our nations, we must first see ourselves as we are seen. And so do these corporate entities: the stock price cannot be the only measure of success.
Just publicly negotiate the price for what would otherwise be externalities. The more challenging part is to keep the public public - to keep it transparent and democratic.
ReplyDeleteAlistair Young: Who could have thought of that there was such a low supply of people who wanted to work as highly paid CEOs.
ReplyDeleteAlistair Young and how much "they" pay you for voicing your "opinion"?
ReplyDeleteSakari Maaranen Politics is the application of power, The answer is voting, all right. Votes on boards of directors are what matter. And they're all that matter. Insofar as capitalism works, three people can profit from a well-run firm: investors, management and workers. All three have to profit or the whole engine of capitalism will blow up.
ReplyDeleteC'mon, Otto von Bismarck understood this and nobody hated socialism more than that old monster. He needed to undercut them and he did, by listening to Hermann Wagener and Theodor Lohmann, who explained the obvious to him and he followed their advice to the letter. He simply had to do something to reform capitalism: young people were leaving Germany for America in the 1880s.
By putting workers on the boards of directors with the Mitbestimmung laws, Bismarck short-circuited the Marxist dialectic of workers versus management - he understood who was actually in charge. By putting the workers on the boards of directors, suddenly the workers had power and, as we say in the USA "skin in the game".
Alistair Young: Are you familiar with studies to determine the correlation between company performance and highly paid CEO's pay?
ReplyDeleteDan Weese while you can apply power to politics, that does not define it. Politics is negotiation of common interests. Power is means to bypass politics. With sufficient power you can skip politics. Voting is an approach to the negotiation but not the only way to do it. Actually, you need to have pretty sophisticated checks and balances in place already before voting can work.
ReplyDeleteAlistair Young As a consultant, I've known a fair number of CEOs who run large firms. CEOs, like commercial pilots, are just glorified bus drivers.
ReplyDeleteSakari Maaranen Power, my friend, is defined by physics. The unit is joules. The rate of doing work. Power is not negotiation.
ReplyDeleteDan Weese driving a bus requires responsibility. CEOs only need to know responsible people.
ReplyDeleteAlistair Young: Are you familiar with the CEO pay correlating more with the location of the headquarters than with the actual performance of the company?
ReplyDeleteDan Weese that's kind of what I said. So, yes. Politics is defined by evolution. Politics is negotiation.
ReplyDeleteSakari Maaranen Politics is the application of power. If you don't have the watts, you don't get the joules. You're overcivilised, that's your problem, simply put. Nobody negotiates except from a position of strength: "the strong do what they can and the weak suffer what they must."
ReplyDeleteThat's the problem with people who are not mature enough to understand politics Dan Weese. You are talking about the culture of distrust, the culture of fear. That's war, Dan. That's the feudal society and similar. I'm talking about what comes after that. The Nordic model. The culture of trust. It takes some growing up to get there. Before that, the power games seem logical. They are not. It's only because the culture of fear is naïve.
ReplyDeleteSuppose you win every war. What are you going to do then? That's the culture of trust. Suppose you realize that earlier. Skip the fights. Still, the question remains: Now what? That's the culture of trust. You will get there whether you fight or you don't. The more you fight it the longer it will take, but there is no other place to go.
ReplyDeleteAlistair Young: Aha. So, why doesn't the importation of lower-paid CEOs from Japan, Germany, or Sweden depress the salaries of American CEOs in our times of universal outsourcing?
ReplyDeleteSakari Maaranen I have lived among savages all my life. The worst ones I know wear bespoke suits. I wear bespoke suits when I must, I suppose that makes me a savage,too. This isn't feudalism, it's unrestrained capitalism. Feudalism was a world of loyalty, where people swore oaths and meant them, where honour meant more to a man than life. That's not true in capitalism. The Nordic model cannot be transplanted, democracy doesn't work like that.
ReplyDeleteLook, I've laid out an elementary circuit for you. With workers on the boards of directors, everyone gets their share and fairness can be achieved because there is a balance of power . And I'm not sure I like the tone of this Growing Up business, either.
Alistair Young I don't have the faintest what your uttering, pal. Ultimately decision making is pure intelligence. It's the creative flow. That's challenging to achieve because smart and mature people are in minority.
ReplyDeleteDan Weese had we spent more time together, you would have seen the way. Unfortunately we are separated by this digital medium, but even so, I see that you have the dynamic and obviously the experience. We would have been a good team, my friend.
ReplyDeletehttp://static.fjcdn.com/pictures/I+have+no+idea+what+you+re+talking+about+so+here_8868dd_4725828.jpg
ReplyDeleteAlistair Young Having run my own consultancy for 30+ years, being the guy in charge doesn't mean all that much. I do robotics and decision support systems, mostly. There's a joke in robotics, it's very old. Sakari's heard it before.
ReplyDeleteIn the not-so-distant future, they'll have fully automated commercial aircraft. But ordinary people will reject the concept: they'll want an actual pilot in the cockpit. And sure enough, they'll hire these guys, avuncular guys with some fighter jet experience, wearing the uniforms, gravely nodding at the doorway as the passengers enter - but once he goes into the cockpit, he's not allowed to touch the controls unless there's some emergency.
The insurance firms, all the while, watching this trend, will have bred a fair sized dog, along the lines of a medium sized German Shepherd. The dog will be up there in the cockpit, too. Should the pilot ever go to sleep, the dog is trained to bite him in the nuts....
Sakari Maaranen From what I've seen, decision making is mostly instinct. The neurobiologists are telling us we've made up our minds, long before we act: mostly what we're thinking when we supposedly reason through a decision is coming up with an excuse for the decision we're about to make.... that's a fact.
ReplyDeleteThat is a fact, Dan Weese. And our instincts - they have evolved. That is also a fact.
ReplyDeleteSakari Maaranen The child of my wife's first marriage came to the USA from a very bad situation; I caught her hoarding food in her room. I fell to my knees and wept and took her to the grocery store and told her to put anything and everything she wanted in the cart, telling her she would never be hungry again.
ReplyDeleteHere's how I explained socialism to my kids.
Who owns the milk in the refrigerator? And who gets to drink it? Now, when I was a college student, living with other students, food ownership was a very big deal. But not in this house. If we run short of anything, we just go down and get some more.
This works just great, for us as a family. And if your friends came over, they can eat here too. But we don't let just anyone wander into the house to eat. Now, if someone needed a meal, we might do so, but we also give money for refugees, that's a better thing, so people who really need help can get it.
Socialism works until we start drawing a line around who gets to have a glass of milk and who doesn't.
See, the Nordic countries have two distinct advantages: they're small and they're ethnically homogeneous. Being small, it's a short round trip from taxation to benefit, so people don't mind so much. Well, my son-in-law, the Finn, he does mind. He's Finland's last capitalist. He left Finland and now lives in Chicago.
See, the Nordic nations can look down their noses at others, thinking they're so much better, so much more evolved, that sort of thing. It's a miracle they haven't pulled their glenohumeral joints out of their sockets, the way they pat themselves so firmly on the back. But put someone who doesn't seem to belong there, the same tiresome Us Versus Them sentiments emerge, as they always do.
Blocked Alistair Young. Reason: Libertardian anti-government anti-democractic troll / lobbyist. Otherwise known as waste of time.
ReplyDeleteDan Weese Nordic countries are capitalist. Very much so. We also pay our taxes and have welfare. Excellent welfare. But we are capitalist. Period.
ReplyDeleteSakari Maaranen I thought you said we were feudalists and you were the evolved humans who'd gotten past capitalism and now lived in some paradise of trust. I do not know all of Finland but know Turku well enough to know that trust is in short supply in Finland, one of the rarest commodities in that nation.
ReplyDeleteWell. Depends on your perspective on trust Dan Weese. Maturity seeks trust but is not blue-eyed.
ReplyDeleteSakari Maaranen When I was a boy, I watched a group of Hausa hack an Igbo man to death with machetes. The human race is nothing more than troops of vicious hominids. Oh, we have some beautiful veneers we like to glue onto the substrate, Beethoven, Picasso, the Ryoanji Zen garden, that sort of thing. I enjoy that stuff enormously. But I'm not fooled for a minute by any of it. Given the least provocation, that veneer peels up off the rotten base and that grinning little cannibal is peeking out at us. Peace is an interesting illusion, one well worth preserving, but it only appears when there's some balance of power.
ReplyDeleteDan Weese when I was a boy, of 18, I took away a knife, a rather large leuku, big enough to qualify as a machete or vesuri, from a rather drunken customer to my mother's guesthouse. I was injured, my hand, but it didn't matter. I was late to return from my weekend time off back to the force. I was late, being patched, at the hospital. I was disciplined. Not rewarded. Taking a knife off some customer is okay, but no excuse to return late from your weekend off the army.
ReplyDeleteSakari Maaranen Life isn't fair, is it? I kinda hoped, as I got older, that I could be a good example, what the Gospel of John called the light that shone in the darkness, even though that darkness never comprehended the light.
ReplyDeleteAs my Greek improved, I came to terms with the word κατέλαβεν . Some translate it as comprehension but that's wrong, I think. It means to attain, to overcome. The light never wins. The darkness is still there, just beyond the reach of the light.
So I kinda stopped believing in any notion of fairness. Justice is just congruence with the law. You ran a very serious risk, taking that leuku away from that drunk and you paid a high price for it. And ended up paying yet another price! Yet, when all is weighed in the balances, you and I know you behaved honourably and wisely. And that transcends fairness or justice, to do the right thing, though all the world oppose you. Seems to be a pretty good guide to enlightenment, by my lights, that a stupid, insensate world will stand up to oppose decency and kindness and love for our fellow man.
... and people wonder why I'm a religious man, heh. Let them wonder. You did the right thing.
Dan Weese that is the only reason -and a very good reason - why we need welfare, why we need fairness. We need fairness exactly because life is not fair. It is not. That is a fact. That is why we need to make life more fair than it is. There is no other reason.
ReplyDeleteSakari Maaranen I just don't call it fairness. Fairness, as I've said before, is a begged question. It presumes both sides agree to what's an equitable arrangement and that's a fantasy.
ReplyDeleteThe word I use is χάρις , the inclination to favour another, we get "charity" from it, but that word has been spoilt. χάρις is more than just giving something to someone else in need, it has spiritual overtones, it means "grace". Nobody earns grace. Grace is what enlightened beings do for others because they see themselves in others. How can I enjoy my comforts and little joys, knowing others have nothing? Selfishness only builds a grim prison - for me.
Dan Weese welfare is realistic. Verily so. The Nordic model is all about realism. No frills. There's almost nothing idealistic about it. It's near lowest cost approach to basic human dignity. It would be the lowest if it was possible. It's near, because that's still realistic and actually does work.
ReplyDeleteSakari Maaranen Well, "realistic" is another one of those recursive constructions, like "fairness" - we both understand a well-constructed welfare state is viable, so did Bismarck in his day. I say, with Bertrand Russell, that socialism is the only logical follow-on to the Industrial Revolution. Socialism is simply a method of hitching the engine of capitalism to the freight cars of society - the engine has the power to haul an entire society to a modicum of prosperity. But the success of socialism is entirely dependent upon the wisdom of the administrators: who gets a glass of milk? Someone won't.
ReplyDeletehttp://www.ditext.com/russell/cs.html
Realistic means field proven and works in practice with decades of experience.
ReplyDelete"The engine" only exists and is defined by publicly negotiated rules, relying completely on publicly negotiated infrastructure - and that's how it should be. That's how it works.
ReplyDeleteSakari Maaranen That's where we disagree. Governments don't create anything but laws. It's up to that beast Capitalism to create the wealth so the governments can tax it. Governments can regulate markets but they don't create them. Now that's how it really works. Nobody's bigger than the market, especially not the government.
ReplyDeletePublicly negotiated rules create markets in the peaceful sense. No rules creates markets like theatres of war. Good laws live in the market for justice. That is the market of cooperation. How to achieve that. Peace. If we cannot agree - if we cannot negotiate - we will kill each other.
ReplyDeleteSakari Maaranen We do kill each other, as anyone who's ever had to watch a firm die will tell you, I went through two Dot Com enterprises which went under due to bad management.
ReplyDeleteYes Dan Weese. That is the culture of fear. Culture of trust knows this very well. However, culture of trust also knows we can negotiate our cooperation creating a peaceful market that can prevail over the more primitive market of fear.
ReplyDeleteSakari Maaranen Call me trust-deficient. The culture of trust, where I come from, is mostly saying "Nice doggie, nice doggie" - while feeling around for a nice big stick. Trust is earned, by me.
ReplyDeletehttp://assets.amuniversal.com/f4f165d0ae6b01341f1d005056a9545d
ReplyDeleteDan Weese I agree that people who understand peace should kill those who don't. This was a poem to be understood metaphorically and not as a command to kill. It's because peace will otherwise be broken anyway by the warlike people. That's why I say shoot the fascists before proceeding with peace. That's defence - not aggression.
ReplyDeleteSakari Maaranen Maybe I'm just being an obtuse jerk here, but I look at morality in its normative sense and grimly smile. Over time, Nietzsche would eventually contradict himself on pretty much everything, but he was onto something with his thoughts on morality. Society long since lost its powers of persuasion. Everyone's alienated. We want a Fairer Society, so we say - but our actions betray us. When these Fairness Folks are asked to explain why Ronaldo and Messi make all that money, they just start gibbering.
ReplyDeleteFairness is a balancing act on evolving pluralities - not an absolute. It's still real and very much negotiable. Those dismissing fairness for it not being an absolute are making a straw man argument. Warlike people like to clash at the borders. There are no borders where there is balance. That's why people who like power games don't see it. They need borders and look for them when peaceful people try to show them where there aren't any. Then they complain they don't see anything.
ReplyDeleteSakari Maaranen Balancing, evolving pluralities, sounds like there's a fulcrum in there somewhere, and a bit of humbuggery to boot, all this talk of Straw Men. Fairness is for people who can afford it.
ReplyDelete