In June of 2005 at a Joint Economic Committee hearing, Federal Reserve Chairman Alan Greenspan addressed a surprising topic: the widening gap between rich and poor. Greenspan painted a picture of this growing problem that was sobering to say the least, one that revealed not only a gap between the affluent and those living paycheck to paycheck but two populations with vastly divergent financial futures. He reported that 80 percent of the workforce represented by non-supervisory workers had seen little, if any, income growth. Conversely, the top 20 percent of supervisory, salaried and other workers had seen their incomes grow in the previous year.
“This is not the type of thing which a democratic society – a capitalist democratic society – can really accept without addressing,” said the Fed chief.
Greenspan’s concern over this issue shows the extent to which it has moved into the mainstream. This is no longer merely a liberal issue or a labor issue. According to the Fed chief, it is an issue that impacts the very health and future of capitalism. The increasing disparity between the pay in upper management and the blue collar employees who “work to live” creates a downward spiral that can only effect our economy in a negative way.
To put things in perspective, consider that the federal minimum wage has remained at $5.15 for the last eight years. Advocates of increasing the federal rate argue that inflation has made the minimum wage worth less today than at any time since 1955. Now consider that as this issue is debated in congress, executive pay continues reach new heights.
According to The Wall Street Journal, the average CEO’s salary is 475 times that of the average worker, a figure that is likely demoralizing for any worker. In an increasingly global economy, an easier way to be competitive with costs would be to pay CEOs much, much less. The average CEO in Japan earns only 11 times what the average worker makes.
In an interview with The New York Times, Daniel J. Steininger, chairman of the Milwaukee-based mutual fund company Catholic Funds, says of overpaid CEOs, “There is evidence that directors who enjoy high director compensation are more likely to pay excessive CEO compensation and that high director pay coupled with high CEO pay correlates with underperformance of the company. Pay without performance has been tracked and studies show an absolute correlation between excessive CEO pay and undeperformance.”
Over the years, we have profiled a number of progressive leaders who have understood the value of employees and the importance of their contributions to the success of the business. Each one realizes that no organization can be successful without committed employees, and constantly considers the wellness of the business not only financially but in terms of worker engagement and satisfaction. Many have had to make tough decisions to reduce pay, benefits and even headcount. The difference between these leaders and the overpaid CEOs of the world is they do not view their enterprises as their own personal piggy bank. They understand that a business’ long-term health is as vital to the people that keep it running day in, day out as it is to those at the top of the executive ladder.
Small business owners are in a particularly strong position to make a difference in creating a fairly-paid workforce. They employ the majority of American workers and will continue to do so long into the future. Small business owners can show their appreciation of employees’ contributions at all times with fair compensation and by rewarding them with increases during good times and sharing the pain during the bad. In short, they can show that they value workers; a concept many major corporations in our country cannot seem to grasp.
Leadership in any company can look to their employees for ideas about how they can become more efficient, more productive and more profitable, while maintaining the best interest of everyone on their payroll. The practice of treating employees with trust and respect has many implications. It means looking to your people as a resource and not just a cost. It means accepting the same kind of belt-tightening measures expected of front-line workers during the hard times. Perhaps most importantly, it means making sure workers are a partner in creating a successful business, showing them how they can impact the bottom line and rewarding them when they do so. As John Mackey, the CEO of Whole Foods, who limits his pay to only 14 times the pay of his average employee, says, “We have a philosophy of shared fate – that we’re all in this together.”