The arguments on each side of the debate are well rehearsed. On one side the main point appears to be that there is competition for senior executives and you can’t buck the market. On the other there is a body of opinion that finds the scale of rewards disproportionate and even unethical.
I thought it might be helpful to take a different approach and look at the topic from an executive search perspective. This article derives from my own personal experience, so its hardly likely to pass a test of rigorous scientific proof. However, two observations may be of interest.
I have been working in senior level executive search for over 16 years now. As part of my job, I have to ask potential candidates what they are paid. I do this, on average, 2-3 times a day. Conservatively, that adds up to approximately 500 times a year, so I may have asked the question about 8,000 times. Less than 5% of the individuals I ask actually know the answer.
That may seem ridiculous or even offensive to those on a typical salary but its not as odd as it seems. Ask yourself if you know the true value of your benefits and pensions. For senior executives, there are often complex long term incentives and share options, the value of which are unknown until crystalized. The only difference for those at the top of the tree is that the extras often will be more than 100% of base compensation, sometimes significantly more.
My conclusion is that the people I meet obviously know that if they work hard and the business is successful they will get paid more. However, they have only a vague idea how much more. So is offering 10-20% more likely to affect their work ethic? I doubt it. I suspect their work ethic is an inherent trait in their personality. Perhaps money might have been one factor in their pursuit of advancement in the first place, but there are also likely to have been many other influences at play, such as a desire to have impact and influence, a wish to make their parents and family proud, a fear of failure and so on.
Why the move?
My second personal observation is to look at organisations where its employees truly strive to achieve as close to perfection as humanly possible. One obvious example is in the world of the arts. You might take a look at orchestral musicians and ballet dancers, for example, who are utterly focused on the pursuit of excellence. How much do you imagine a violinist in a leading symphony orchestra earns? According to UK government data, a section principal earns around £38,000 a year. Ballet dancers get similar levels of income. Bonuses don’t appear to feature in their lives and yet it does not seem to compromise their ability to deliver to an exceptional level.
So what about the argument that there is a competitive market out there and high pay could attract candidates to a new role? That can certainly be true, but is only a small part of the story. In my experience of persuading people to move jobs, there are often many other factors that are more important. Typical examples are:
• Little likelihood of further advancement
• Lack of challenge
• Unhappiness about the strategic direction of a company
• An external event (e.g. merger/acquisition)
• Mismatch on company culture or values
• Poor chemistry with a new line manager
• Personal or other domestic drivers (e.g. need to move house for children’s education, care for elderly relatives etc.)
My conclusion is that the ever increasing level of senior executive is likely to be rooted in a number of causes. For example, if remuneration committees aim to pay above the median or even top quartile, this will inevitably start a merry-go-round of increasing pay. However, it is unlikely, in my view, to guarantee above average performance. Focusing on building great places to work, with a positive culture and a generosity of spirit may be significantly more helpful to enhancing performance. Furthermore, this benefits all employees, not just the few at the top.