You cannot divorce organisations from the societies within which they exist because it is those societies that supply the employees, the customers, and the social infrastructure necessary for their success.
Consequently, where it becomes apparent that an organisation is is run for the primary purpose of enriching the chief executive and a few others, it risks a severe disruption in the social harmony that is a prerequisite for success. That is especially true when polls indicate that more than 80 percent of Americans think corporate executives are overpaid.
In a recent editorial, The Financial Times cautioned that the excesses and conspicuous consumption brought about by current executive pay levels were placing the very balance of society at risk. In one extract, the editorial noted:
Plutocrats can spend all their money on mansions, yachts and servants, but if they do so, then pressure for higher taxes and collective labour bargaining will return and grow. Great wealth is often the result of great talent. But it is also a privilege granted by the rest of society and, if it is abused, society will not hesitate to take it away.
The Financial Times is not the only publication that has expressed concern over the possible negative impact of executive pay.
The Washington Post editorialized December 22 in support of “Just Capitalism”, remarking, “Executive overpayment running into the billions sends a terrible signal about the justice of the capitalist system.” The newspaper warned that unless executive pay and the “industry of consultants [that] exists to legitimize super-sized executive pay” are reined in, “the growing material inequality in the nation will be compounded by the corrosive perception that the rules are unequal, too.”
Work Foundation, an independent think-tank notes that the “excessive” pay levels of Britain's top chief executives amount to a “perversion of market principles" because they bear little risk…Growing pay inequality, with top directors getting pay rises of 10 times the inflation rate, "corrodes the basic concept of fair reward that underpins a thriving society”.
Then of course, there is the widespread scandal surrounding the backdating of stock options, the full extent of which is only now becoming apparent.
Excessive executive pay rewards will only serve to increase corporate social dysfunctionality by fracturing the relationship between employees and managers and causing their objectives to diverge. This will negatively affect organisational creativity and productivity.
Further, such excesses will also affect an organisation’s relationships with its customers and the wider community, and in the longer term further impair its value.
Executives should view executive pay and rewards as an important aspect of their relationship with all their human asset stakeholders – employees, clients, suppliers, managers, and the wider community. Consequently the management and credibility of the process, as well as how and what it communicates should be considered essential aspects of stakeholder/human asset management as well as the organisation’s overall business strategy.
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