How Much More Should Your CEO Make than Your Average Employee?

There’s a story told about the early days of the Ford Motor Company that Henry Ford believed the workers building his cars should be able to afford to purchase the cars themselves.

That story comes to mind whenever I hear about a CEO who makes many millions of dollars annually while the average employee at the company makes very little—maybe not even $25,000 annually. In some cases, such as of a major retailer, maybe the average worker only makes less than $10 per hour. According to an August 2015 report from career site Glassdoor (based on data from 2014), Walmart Chief Doug McMillon made $25.6 million, about 1,133 times the median employee’s $22,591. At Discovery Communications, CEO David Zaslav earned $156.1 million in 2014, nearly 1,951 times the firm’s median salary of $80,000.

I remember how I felt myself when I learned at my last company (Training’s former owner) that the then-new CEO was rumored to be up for a $100 million annual salary if he met the financial targets set by the company’s investors. If he didn’t meet those financial goals, he would have to suffer with what was doubtless not such a terrible salary—say $20 million or $30 million (or more) instead of $100 million. No wonder he was so frantically searching for publications, and other business units, to divest as fast as possible to buoy the company’s numbers.

Greed may inspire a company’s leader to do whatever he needs to do to reach financial targets, but whether those things are good for a company’s customers is another story. Likewise, whether it’s good for the long-term health of the company to have such a gap between the pay of the person at the top and the average employee. I don’t know how much the average employee at my old company made, but I’m guessing it wasn’t much more than about $50,000.

Even at privately held companies, the salaries of top executives leak out. And when they do, the average employee, who earns at least 1,000 times less than the CEO, is going to be demoralized and angry. At a time when many companies are asking employees to do more with fewer resources to save money, it’s inexplicable why it’s still OK for a CEO to make so much money. The contrast is often humorous. Employees may be asked to forego the complimentary bagels and pastries they used to get on Friday mornings, while the CEO and top executives continue to enjoy salaries that are in the millions of dollars. The austerity measures companies put in place are often a one-way street, directed solely at employees other than the top executives.

What impact on corporate culture does it make when there is a huge gap between the company’s top executives and the average employee? What I call a “lord-of-the-manor” complex might set in. Back in feudal times in the Middle Ages, a lord would own a vast tract of land on which people of tiny means would work. Some of those people were in bondage to the lord of the manor. Technically speaking, no one is in bondage to any company today. But they may feel they are.

With average salaries often kept low at multi-billion dollar companies, and most of the companies employee have to choose from for employment offering the same deal, it can feel like a situation with no escape. The impact on the corporate culture is a workforce that is hopeless and unhappy. Are those the kinds of people you want to serve your customers? If you’ve ever had the experience of being “helped” by an ignorant, grumpy (maybe even belligerent) employee at a major retailer, there might be a reason these individuals are not in the best mood. They not only are upset, they also see no reason to make a special effort to help the customers of a company they feel is cheating them.

Do you think companies will start to close the gap between executive salaries and those of average employees? How can a trainer or Human Resources executive who believes this gap should be narrowed educate executives about why making this change is important?

Can (and should) the federal government get involved by offering tax incentives to companies that keep the gap between CEO and average employee salaries within a certain range? The other option is a disincentive in which it is made illegal for companies of a certain size (not small businesses) to pay average employees a specified percentage less than the CEO. Companies that violate the law would be significantly fined, or even shut down. Is either of these options viable?

As consumers, we can vote with our feet for businesses that treat their employees well. Did you ever vote with your feet in deciding to leave a company you felt didn’t treat its employees well, including a staggering double standard between what top executives were paid, and how they were treated, and the pay and treatment of average employees? As workforce management experts, what is the responsibility of a Learning professional or Human Resources executive in monitoring, and encouraging, the fair pay of employees?

It may seem beyond your own pay grade to worry about the salaries of others at the company, but as workforce managers and Learning professionals, it’s worth your concern because unfairly low pay will have an impact the amount and quality of work you can train your employees to produce.

 

Training Top 125

Minneapolis, MN (November 18, 2014)—Training magazine, the leading business publication for learning and development professionals, today announced the finalists for the annual Training Top 125, which ranks companies’ excellence in employer-sponsored training and development programs.

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