The 2011 Employer: Mean at the Bottom and Not Lean at the Top
“The U.S. has one of the highest levels of inequality of any industrialized countries in the world. It’s created a great deal of mistrust in everything.” Brain Vargus, Professor, Indiana University – Purdue
I recently had an experience at my local mid-sized “natural” supermarket (we’ll call it Toms) that inspired this post. The store had just been renamed (let’s call it Alfalfa) having just completed a rebranding, after being acquired by a large national chain.
Everything seemed mostly the same, with new labels and a few new products. One thing did stand out though – lots of new faces behind the counters. I wondered why.
After shopping I made my way across the parking lot to the local Starbucks – and guess what? One of my favorite check-out people from the old Toms was now a barista. He proceeded to explain why he quit the new store …… seems the friendly family owned and run Alfalfa had immediately instituted some very unpopular employee policies:
- Across the board pay cuts, rehiring same workers with lower pay
- No health benefits for part-time workers (less than 32 hours per week)
- Keeping full-time workers below 32 hours (to avoid paying health benefits) by designing crazy shifts and cutting hours on the spot
- Most men paid higher salaries than women
“I didn’t want to work for a company that treated people like Wal-Mart,” the personable barista told me, “and people are leaving Alfalfa in droves.”
In fact, the CEO of Alfalfa has stated publicly that he was proud that they have a 95% employee turnover rate when acquiring new stores. Alfalfa’s CEO also keeps his employer costs low – at one store only 2 employees got a raise after their six month review – $.50 per hour.
While my local barista found his new Starbucks benefits package far more generous than his previous employer, he still (rightly) believes that his wages (less than $9.00 per hour) are too low. His CEO, Howard Schultz, who is credited with bringing the company back to profitability, got a 45% compensation increase to 22 million in 2010, which included a salary increase of 1.3 million.
Now That’s a Raise
In 2010 CEO’s on average were paid $11.4 million dollars up from 9.2 million the year before. In contrast, the average worker saw their annual pay go up to $33,121, from $32,049 in 2009, according to the Institute for Policy Studies. So the pay gap of CEOs to workers shot up 20% last year, to 344 times an average worker’s pay from 287 times. In the 1980s, this pay gap was just 40 times. http://money.msn.com/investment-advice/ceos-got-a-big-raise-how-about-you-brush.aspx
The pantheon of CEOs with super sized salaries is large. Recent notables include Verizon CEO Ivan Seidenberg. Seidenberg made the recent list of CEOs whose salaries exceeded what their companies paid in taxes. Seidenberg received a salary of $18.1 million – the company got a $705 million dollar tax refund against profits of $107 billion dollars.
Wal-Mart CEO, Michael Duke’s $35 million dollar salary when converted to an hourly wage, works out to $16,826 per hour. By comparison, an average Wal-Mart store employee is paid $8.75 per hour which is about $13, 650 in gross pay.
Many CEO’s cashed in big after making huge cuts within their employee ranks. Fred Hassan, CEO of Schering-Plough, earned $49.7 million last year and $33 million after leaving the company when the firm merged with Merck, resulting in 16,000 layoffs. According to Kevin Murphy, a professor of finance at The University of Southern California, “We have the recipe for controversy over CEO pay: big increases in CEO pay that show up following run-ups in stock prices coupled with high unemployment rates.”
We All Pay
So who gets hurt when my local barista’s wages get cut? What happens when CEO’s Seidenberg and Hassan get mega raises and their respective companies let 30,000 workers go? While economists have not done enough research on these questions, studies within other disciplines point to alarming trends:
- University College London epidemiologist Michael Marmot found that there was more illness in the U.S. than the UK due to growing income inequality. He attributes the differences to greater stresses on the American worker.
- A Kennedy School of Government study showed that income inequality breeds corruption, especially true in democracies where wealth and power can be more easily exchanged.
- Harvard Professor of Economics, Edward Glaeser states that unchecked inequality can lead to greater inequality. Glaesner’s work points out that as the rich get richer they acquire greater political influence and may support policies that make themselves richer at the expense of others.
- Consumers – whose spending is 70% of the economy have reached their limit. Even people with jobs are cutting back. Median wages continue to fall, with weekly wages in July, 2011 for those with jobs were 1.3% lower than eight months before. As consumers continue to cut back spending, corporate profits will decline hurting the economy even further.
Does Income Inequality Breed Mistrust?
There’s growing evidence that income equality is steadily eroding trust among employees. A 2008 study from The Organization for Economic Cooperation (OECD) showed that with one exception – the United States – people living in high median household incomes were more trusting. While ranking fourth in median income among the 30 countries surveyed, the U.S. ranked as the 10th least trusting country, with only 48.7% of people saying that generally speaking, most people could be trusted.
The OECD’s data also showed that higher levels of trust are closely associated with lower levels of income equality. According to Eric Uslaner, a University of Maryland professor of government, “Inequality is much more significant than wealth and the reason is that trust reflects the view that what happens to me happens to you. That we’re all in this together. And inequality works exactly to counter that.”
Existing trends in income inequality, benefits reductions and cost cutting are not likely to be reversed in the immediate future. This raises serious questions about the future of trust and employee morale.
How can employers “engage” employees if there are major disparities in their compensation levels?
How are growing gaps in income equality hurting teamwork, trust and motivation?
And most important, how can the lost trust, sense of betrayal and lingering bitterness between polarized employees and organizations be healed?
What do you think?
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Louise Altman, Partner, Intentional Communication Consultants