| One of the most concerning aspects of the response | | | | for some to be paid (many) thousands of times |
| to the 2008 banking crisis has been the absence of | | | | what the lowest paid employee in their organisation |
| intelligent debate around the subject of executive | | | | gets. There is no moral justification for it, for no one |
| bonuses. Calls for government to intervene are an | | | | person can make that much difference to the |
| emotional, irrational response. They certainly indicate | | | | organisation. Do you remember the space shuttle |
| how high feelings run on the subject. And they are | | | | that blew up because of a faulty "'O' Ring"? That |
| understandable if you or your relatives or your | | | | design shortcoming had the potential to destroy |
| friends have lost jobs as a result. That, however, | | | | NASA and, possibly, the whole American space |
| only makes them rational. It does not necessarily | | | | programme. Yet what was the pay differential |
| make them reasonable. There are two reasons why | | | | between that designer and the NASA executive? |
| governments should not get involved in the debate | | | | This is a scenario that routinely plays out in |
| about bonuses. | | | | organisations across the country and the world. It is |
| - The crisis was caused by issues that are much | | | | certainly true of the failed banks. |
| more complex than just the bonuses earnings of top | | | | Success is never, ever entirely the result of an |
| executives - no matter how unjust such rewards are | | | | individual's own efforts. This is particularly true in |
| in light of the scale of corporate failure. | | | | business. So, why should there be such vast |
| - It is not government responsibility to intervene in | | | | differences in remuneration? This pay differential is a |
| corporate administration and to do so at such a | | | | moral issue that should be left to the company to |
| microeconomic level would set a very dangerous | | | | sort out for itself. If any government intervention is |
| precedent. | | | | necessary it need to be no more than to legislate a |
| Indeed government intervention to rescue banks is | | | | maximum differential in total remuneration between |
| already unprecedented and seen as a step too far | | | | the lowest paid and the highest paid in the |
| by many. Not only does it blur the traditional lines | | | | organisation and to make any violation of that a |
| between public and private sectors but it removes | | | | criminal offence. Punishment should include a ban from |
| the consequences of failure and thus reduces the | | | | ever securing an executive position in any |
| incentive to avoid future risk. | | | | organisation. Yet even that would be unnecessary if |
| That they did cross that line may have made | | | | all employees could be made co-owners of the |
| governments more reluctant to go even further and | | | | business and all incentives removed other than a |
| take action against executive bonuses. Unfortunately, | | | | distribution of profits, according to their proportionate |
| whatever the rights or wrongs of government | | | | ownership. Such a scheme would: |
| action, one of the consequences has been to further | | | | - Enable the company to set its own pay differentials |
| politicise the debate. As a result the issue has | | | | and work within them; |
| become an ideological one, where any questioning of | | | | - Provide a transparent, non-subjective mechanism |
| the high levels of executive bonuses becomes an | | | | that could not be manipulated; |
| attack on Capitalism and all that it has achieved. This | | | | - Embed organisational teamwork and strategic |
| makes it a case of protecting the system, rather | | | | alignment |
| than looking at the issue as a matter of principle. So | | | | - Ensure the long-term focus that has been totally |
| the dividing line has become partisan and the debate | | | | lost in recent years, and reduce the risk of the kind |
| one of ideological point-scoring. | | | | of failures recently witnessed through short-term |
| Yet true Capitalism demands deeper, rational | | | | focus. |
| discussion of the subject. The whole Capitalist | | | | Most importantly of all, however, it would provide an |
| ideology relies on "the invisible hand" described by | | | | answer to a problem that Mintzberg did not identify. |
| Adam Smith. This force steers the market toward | | | | A problem that is becoming such a concern that the |
| equilibrium through the drive to optimum efficiency | | | | British Government even commissioned a report on it: |
| impelled by the competing self-interest of the | | | | employee engagement. No employee engagement |
| different parties. In the lead-up to the crisis various | | | | initiative will work with the kinds of pay differentials |
| factors combined to remove these counter-balancing | | | | that currently prevail. Such pay differences |
| effects and make this "invisible hand" more of a | | | | perpetuate employee disengagement and will |
| "non-existent hand" and emasculate its effect. | | | | sabotage any effort to redress it. Even more |
| There is no question that executive pay was a | | | | significantly, though, they effectively guarantee low |
| contributory factor in this shameful debacle. Henry | | | | productivity and below par performance which the |
| Mintzberg makes the case extremely eloquently in a | | | | executive team is being paid their huge remuneration |
| Wall Street Journal article dated 30th November, | | | | to improve! How's that for irony? |
| 2008. Any executive who is serious about building a | | | | Employee ownership naturally drives the highest |
| successful company and reducing the risk of such a | | | | possible level of employee engagement. That is why |
| situation ever being repeated should make a point of | | | | employee owned companies outperform their |
| accessing and reading it. Mintzberg makes a number | | | | competitors and the market. And that is despite the |
| of good points but a key one that resonated most | | | | limitations of the two existing models of ownership. |
| with me is his challenge of the conventional wisdom | | | | So imagine what effect a new model that overcame |
| that the executive suite is primarily responsible for | | | | these shortcomings could have on your business. It |
| corporate performance. | | | | would almost be enough to make it worth your while |
| No matter how a business is organised its | | | | to reconsider your executive remuneration practices, |
| performance is a collective effort. It is the ultimate | | | | wouldn't it? If only such a model existed. The good |
| team game. Consequently it makes no earthly sense | | | | news is, "It does! |