Tuesday, January 18, 2011

The New Feudalism

In 1995, the average pay of Canada's highest paid 50 CEOs was $2.66 million, 85 times the pay of the average worker. In 2009, the average pay of the highest paid 50 CEOs had skyrocketed to 219 times the pay of the average worker. The ratio for the top 100 went from 104 times in 1998 to 155 times in 2009.

It is the modern equivalent of the power and arrogance of the robber barons of the 1920s.The CEOs' virtual control of the public policy process allows this obscene level of inequality. There is nothing in this compensation pattern that benefits the corporation itself or the economy more broadly. We are so accustomed to hearing about these gargantuan pay packages that we assume they are a global pattern. But in Japan the average CEO, by tradition, receives no more that 17 times the compensation of his lowest paid employee. In Germany (1999 figures) the ratio is twelve to one. There is no evidence that CEOs in these two countries suffer from lack of motivation or loyalty to their firms.

The pay levels, including bonuses, imply that the CEOs are geniuses, uniquely responsible for the success of their companies. But there is nothing in management theory or practice to support such a conclusion. One of the most famous management gurus, Peter Drucker, who conducted a ground-breaking study of General Motors, stated: "No institution can possibly survive if it needs geniuses or supermen to manage it. It must be organized in such a way as to be able to get along under leadership composed of average human beings. No institution has solved the problem of leadership... unless it gives the leader a sense of duty and a sense of mutual loyalty between him and his associates..."

It is not enough that the hundreds of top executives in the largest firms get huge salaries, something that was once enough to ensure loyalty. Now the financial firms that created the global meltdown claim they must pay huge bonuses to keep the loyalty of their highest paid employees. The leader who once inspired trust and loyalty of his employees has been replaced by what UBC psychologist Robert Hare calls the "sub-criminal psychopath" CEO. These men are extremely destructive to their companies and "... maneuver to have detractors fired and ruin the other peoples' careers without a hint of remorse." Former Harvard University president Derek Bok believes that CEOs are paid their huge bonuses precisely because they are being asked to work against their better judgement as managers and human beings -- and against the best interests of their companies. But being paid huge sums to focus on the short-term returns means managers must consciously ignore the interests of their employees, the community and the long term interests of the company which is paying them.

1 comment:

Dr. Wo said...

About the modern feudalism (meudalism): http://www.meudalism.dr-wo.de/html/nile.htm