Sunday, April 19, 2015

CEO cuts own pay to pay employees more!

It could be a story straight out of Ripley's Believe it or Not.

A CEO of a small company in the US has decided to cut his own pay from $1 million to $70,000 and will dip into his company's profits so that he can pay his employees more. His objective: to raise the minimum wage in his company to $70,000 over the next three years.

What's special about the figure of $70,000? Well, it turns out that upto $70,000, extra money adds to one's happiness.

To me, what's striking about the CEO's act is that it drives home a basic point about corporate pay: what those at the top earn is often at the expense of what those at the bottom earn. CEOs lobby to keep minimum wages low. They ensure that unions are kept weak. They fire workers in droves and use some of the savings to boost their own pay. They move operations to low-cost economies so that US workers lose their negotiating power.

The result is that the ratio of CEO pay to worker pay has risen from 20:1 in 1965 to 296:1 in 2013. The average CEO pay in the top 350 US companies was $15.2 mn. High CEO pay goes hand in hand with enormous inequality in pay. As the New York Times story, referenced above, notes, the SEC has been reluctant to make it mandatory for US companies to disclose the ratio the highest to lowest pay in US companies.

The story also cites Peter Drucker's norm of 20:1 for the ratio of the highest to lowest pay in a company. In India, the ratio is even higher. I wonder what the ratio is at Infosys where Vishal Sikka is paid more than Rs 30 crore. Would it be 1000:1? And this is the company where N R Narayana Murthy was not long ago talking about a ratio of 20:1 or 25:1 as an acceptable level of disparity in pay!

1 comment:

2jaipm said...

So very refreshing...many thanks for sharing. Feeling happy after reading this.