I thought I’d do a little bit of “social math”. As far as I understand, these are “workforce adjustments” that are not thru so-called “socially responsible programs”, but rather true job cuts as reported in the press these recent months.
A good example of what can be written to capture what’s going on here is:
Allegheny Technologies recently announced reducing their workforce by 700 jobs. Since the average pay of production workers in Allegheny’s industry is $54,590, the company might claim to save about $38.2 million dollars. However, last year, they paid their CEO, Patrick Hassey about $23.3 million dollars. Had they moderated Hassey’s pay to 25x the industry’s average worker pay – a reasonable $1.3 million - they would have saved about 400 jobs. In other words, given a goal of reducing costs by $38.2 million, if the first place they looked was at the executive suite, they would have only had to cut 300 jobs. Are the savings worth it, given the destruction of the morale (and perhaps productivity) of their remaining employees? Is there something to say about shared sacrifice during these times of economic turmoil?
A ratio of 25x is not a new concept. Respected management thought leader, Peter Drucker used to write that any pay greater than 20 to 25 times the average worker corrodes mutual trust[1].
Perhaps unknown to many, the ratio between the US President’s salary ($400,000) and the lowest paid federal employee is about 25:1[2] Legislation in fact has been put forward first by representative Martin Sabo, and now sponsored by Congresswoman Barbara Lee (see H.R.3876) that proposes CEO pay above and beyond 25x the lowest paid worker ought not to be tax deductible. The idea is for the public purse not to subsidize the style of pay that contributes to the demoralization of society[3].
Also, if we want to add something positive along the lines of shared sacrifice, today the AFP reported that Goldman’s executives are foregoing 2008 bonuses (http://news.yahoo.com/s/afp/20081117/bs_afp/useconomycompanygoldmansachs;_ylt=AkMq.K6awkixPZ0Qrv44zSioOrgF).
Also, AIG decides to drop their deferred compensation program (a program that saves executives tax dollars). However, this move affects nonsupervisory employees as well and was done in order to remove the incentive for mass exit of employees. (http://www.cfo.com/article.cfm/12624103?f=alerts)
[1] Wartzman, Rick (2008) BusinessWeek. Put a Cap on CEO Pay
[2] 2008 General Schedule (GS) Pay table, U.S. Office of Personnel Management. http://www.opm.gov/oca/08tables/indexGS.asp; How Much Does the U.S. President Get Paid? HowStuffWorks.com, Discovery Communication, LLC; Anderson, Sarah, and Pizzigati, Sam (2008) Rewrite Bailout Rules on CEO Pay. Seattle Post-Intelligencer.
[3] THOMAS-Library of Congress. H.R. 3876 sponsored by Congresswoman Barbara Lee http://thomas.loc.gov/home/bills_res.html
A good example of what can be written to capture what’s going on here is:
Allegheny Technologies recently announced reducing their workforce by 700 jobs. Since the average pay of production workers in Allegheny’s industry is $54,590, the company might claim to save about $38.2 million dollars. However, last year, they paid their CEO, Patrick Hassey about $23.3 million dollars. Had they moderated Hassey’s pay to 25x the industry’s average worker pay – a reasonable $1.3 million - they would have saved about 400 jobs. In other words, given a goal of reducing costs by $38.2 million, if the first place they looked was at the executive suite, they would have only had to cut 300 jobs. Are the savings worth it, given the destruction of the morale (and perhaps productivity) of their remaining employees? Is there something to say about shared sacrifice during these times of economic turmoil?
A ratio of 25x is not a new concept. Respected management thought leader, Peter Drucker used to write that any pay greater than 20 to 25 times the average worker corrodes mutual trust[1].
Perhaps unknown to many, the ratio between the US President’s salary ($400,000) and the lowest paid federal employee is about 25:1[2] Legislation in fact has been put forward first by representative Martin Sabo, and now sponsored by Congresswoman Barbara Lee (see H.R.3876) that proposes CEO pay above and beyond 25x the lowest paid worker ought not to be tax deductible. The idea is for the public purse not to subsidize the style of pay that contributes to the demoralization of society[3].
Also, if we want to add something positive along the lines of shared sacrifice, today the AFP reported that Goldman’s executives are foregoing 2008 bonuses (http://news.yahoo.com/s/afp/20081117/bs_afp/useconomycompanygoldmansachs;_ylt=AkMq.K6awkixPZ0Qrv44zSioOrgF).
Also, AIG decides to drop their deferred compensation program (a program that saves executives tax dollars). However, this move affects nonsupervisory employees as well and was done in order to remove the incentive for mass exit of employees. (http://www.cfo.com/article.cfm/12624103?f=alerts)
[1] Wartzman, Rick (2008) BusinessWeek. Put a Cap on CEO Pay
[2] 2008 General Schedule (GS) Pay table, U.S. Office of Personnel Management. http://www.opm.gov/oca/08tables/indexGS.asp; How Much Does the U.S. President Get Paid? HowStuffWorks.com, Discovery Communication, LLC; Anderson, Sarah, and Pizzigati, Sam (2008) Rewrite Bailout Rules on CEO Pay. Seattle Post-Intelligencer.
[3] THOMAS-Library of Congress. H.R. 3876 sponsored by Congresswoman Barbara Lee http://thomas.loc.gov/home/bills_res.html
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