AWA – Issue #2
Some have argued that the salaries of corporate executives should be linked to those of their lowest-paid employees. This, they argue, will improve relations between management and workers, reducing costly labor disputes and increasing worker productivity. What these people overlook, however, is that these high salaries are necessary to attract the best managers, the individuals whose decisions have the greatest impact on the overall well-being of the company.
The issue whether the salaries of corporate executives be made a fixed multiple of the the lowest paid employee is a debatable one. On one hand, some argue that this will enable to improve relationship between the top and lower tier thereby increasing faith. On the other hand, some argue that this will make it difficult for a corporate to attract the best talents in the industry only because salaries become virtually non-negotiable. In my opinion, the salaries of the top executive should be linked to the lowest paid employees for various reasons.
Firstly, it has lately been seen that the top executives switch jobs very quickly. Whenever someone agrees to pay them more, they are quick to change ships. When this happens not only the corporate suffers but the executive fails to provide any service or value add to the company. This is all because of the salaries being negotiable and flexible. If the salaries are made fixed relative to the lowest paid employees, executives will join a company fully aware of what to expect and will dedicate his whole tenure working for the well being of the company. For e.g. we know of many executives like Steve Jobs and the Founders of Google who hardly take any take home salary but are working hard to keep their companies at the top.
Secondly, linking the salaries help in increasing the faith and respect of the lower tier for their top management. Not only the lower tier will be content, the shareholders of the company will feel safe knowing the fact that the money earned by the company is being used for its own constructive use and not for filling the coffers of its executives. This will lead to a healthy atmosphere throughout the organization and the employees will be able to provide better productivity.
Lastly, as far as attracting the talent is concerned, there are other ways in which this can be achieved. For e.g. bonuses can be linked to performance, in terms of profits, which can motivate top talents to give their best to the job. They can be bought on board with a bonus component attached which, once they show their talents and make profits for the company, is disbursed to them. Bonuses can be in form of cash or stock options. For e.g. top talents who join a startup do not have enormous salaries, but work really hard. Stock options help pay off their hard work once the fruits of their hard work bloom.
My strong belief is that the salaries cannot be made so flexible and stretchable that executives exploit it and make good money for themselves in short time. This will neither help the company nor the economy in general. Once way to make it slightly fixed is by linking it to the lowest paid employee’s salary and that is what I am strongly in favor of.
