Australian Financial Review http://www.afr.com.au/content/990428/news/news7.html April 28, 1999 Silence deafening as CEOs operate in `war zone' Work Relations, By Julie Macken It does seem pathetic that at the close of the 20th century, economists and social commentators are still being forced to argue the case for greater income equality. Unfortunately the only side willing to put their cards on the table have been those calling for greater income equality. The silence from the other side has been deafening. And how could it be otherwise? Not even the most arrogant CEO, politician or senior manager would be able to argue that their multi-million dollar wage package - share options included - is actually good for the community. OK maybe Al Dunlap would actually give it a shot. Probably along the lines that his wage is fixed to the company's performance via the use of share options. Therefore, if his leadership increases the value of the company's shares then it is only right that he should be rewarded. This is incentivizing with a "z". There are two problems with this argument. The first is one that confronted the US Army some years ago. The army found that the greater the inequality of pay between the new recruit and the top brass, the greater the tension, the lower the morale and the less loyalty they had to work with. When your life is on the line, things like loyalty and morale loom large in your considerations. Therefore they established a practice that limits the income ratio between the lowest paid recruit and the highest ranking officer to 10:1. Of course, corporations don"t operate in war zones and CEO"s are never likely to find themselves in the position of having to rely on their lowest paid workers to save their backside. Or will they? According to many strategists and futurists the answer is "yes". With the growth of knowledge-based industries and work continuing to grow, ideas and intellectual property will make the difference between a company"s success or failure. There is every likelihood that Australian companies will confront the same dilemma as their American counterparts - how to attract and keep people capable of generating the ideas and intellectual capital so necessary for success? As it turns out, truck loads of cash doesn"t seem to work as well as things like loyalty, good morale and equity in the company. The other problem with the "incentivizing" argument is that it rewards the kind of destructive short-term piracy many CEO"s engage in. That is, they respond to a falling share price by calling for redundancies, imposing a wage freeze and "no replacement" employment policy and watch the share price climb - taking their own personal fortunes with it. In the process they create demoralised and stressful workplaces where the best and brightest jump ship for safer shores leaving behind the rest. This intellectual and skills export program may take six to 12 months to notice, but eventually the product suffers, the share price begins to falter and the CEO is packed off with a truck load of cash bound for his next highly paid disaster. Raising the question: Incentivizing for what? [EMAIL PROTECTED] c This material is subject to copyright and any unauthorised use, copying or mirroring is prohibited. ************************************************************************* This posting is provided to the individual members of this group without permission from the copyright owner for purposes of criticism, comment, scholarship and research under the "fair use" provisions of the Federal copyright laws and it may not be distributed further without permission of the copyright owner, except for "fair use." -- Leftlink - Australia's Broad Left Mailing List mailto:[EMAIL PROTECTED] http://www.alexia.net.au/~www/mhutton/index.html Sponsored by Melbourne's New International Bookshop Subscribe: mailto:[EMAIL PROTECTED]?Body=subscribe%20leftlink Unsubscribe: mailto:[EMAIL PROTECTED]?Body=unsubscribe%20leftlink
