Executive pay rises that are vastly beyond what other staff receive break the social contract and tarnish an organisation’s reputation.
Pankaj Mishra’s new book, The Age of Anger: A History of the Present, tells the story of Oklahoma bomber Timothy McVeigh, and the man who planted the bomb at the World Trade Centre, Ramzi Ahmed Yousef. They later occupied adjoining prison cells.
On the face of it, the two men were on different paths. McVeigh was an Iraq War veteran and a drifter who had done poorly at school and couldn’t hold down a job. Yousef was from Pakistan, had studied in Britain and was a skilful computer engineer who had worked for the Kuwaiti government.
An article in the London Review of Books observed that if Yousef had embraced life in the US instead of trying to blow it up, he could have walked into jobs McVeigh was unqualified to get. McVeigh was superfluous to his world in a way that Yousef was not, but they were alike in that their anger gave them purpose.
One of the things HR practitioners know is that engagement in work can provide people with meaning and purpose. On the other hand, the wrong job, or no job, can lead to sustained anger, and even mould a person into perfect fodder for extremist and terrorist causes.
Let them eat cake?
In 2004, MIT professor of management Thomas A. Kochan wrote a paper that appeared in Asia Pacific Journal of Human Resources. He noted that US CEO pay relative to the average worker in the 1960s was on a ratio of 40:1. In the 1970s it reached 400:1.
Kochan’s reference to this explosive relativity concluded: “HR professionals lost any semblance of credibility as a steward of the social contract because most of them lost their ability to seriously challenge or offer an independent perspective… to the CEO or other top executives.”
In a book of the same name, Jean-Jacques Rousseau is credited with coining the term ‘social contract’.
It crystalises an idea that’s regarded as having helped to fuel the French Revolution. At the time, the average Parisian worker was having trouble putting enough bread on the family table; and the response from on high was summed up by the infamous quote attributed to Queen Marie Antoinette, “Let them eat cake”.
The “tone-deaf” response
Last year, Louise Davidson, the CEO of the Australian Council of Superannuation Investors, noted that chief executives’ pay had risen 12.4 per cent in 12 months for those running ASX 100 companies, and bonuses were up 18 per cent.
Australian CEOs were earning 78 times more than the average worker, and the Reserve Bank governor expressed concern about persistently low wage growth for the average worker – 2 per cent was the norm – and its potential to curb Australia’s economic growth.
Davidson did not mince her words: “At a time when public trust in business is at a low ebb and wages growth is weak, board decisions to pay large bonuses just for hitting budget targets, rather than exceptional performance, are especially tone-deaf. This may be a sign that boards have lost sight of the link between a company’s social licence and the expectations of communities and investors.”
Social licence! Nearly three centuries have passed, but we haven’t moved far from Rousseau’s phrase, nor the conditions that gave rise to it. The use of ‘licence’ here is conceptual rather than literal. Companies don’t apply for one, but it’s a term closely connected with an organisation’s brand and reputation, and there’s an indication of how quickly they can be lost in a sea of community anger.
The issue of executive remuneration is pertinent to the work of a group of specialist HR practitioners. For that reason, the Australian HR Institute took an active role in the Productivity Commission’s 2009 inquiry into executive remuneration, conducted in the wake of the global financial crisis. I spoke to the two-strikes rule at the commission and supported the practice, but at a higher threshold than 25 per cent. Since it became an amendment to the Corporations Act, it has rightly struck fear into boards at many an ASX-listed annual general meeting.
If you are someone who has lost your job and your home, as millions had at that time, you might get a sense of where anger fits into this picture. The dominant mood was that, if the wider society and a company’s employees were suffering pain, the company’s executives also needed to feel it, and in many instances that was not apparent.
It can’t be expected that the HR function is the solution to this issue, but it has a legitimate part to play. The contribution the institute’s board has made since then is to initiate a robust professionalisation of HR through certification.
We are now prepared to say to business leaders who employ the institute’s certified HR practitioners: “These professionals have the capability to work with you as skilled business partners to boost the engagement and productivity of your people.
“In addition, they will challenge you if you propose to play fast and loose with the assumptions you bring and demands you make on your employees, your customers or your suppliers.”
This is an edited version of a speech Peter Wilson gave at the AHRI National Convention in August 2018. It was first published in the October 2018 edition of HRM magazine.