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The Issue of Fair Wages: A Reflection

By Abdelkarim Hassan

The Washington based Institute of Policy Studies published research on the soaring pay of top CEOs. The average CEO of a Fortune 500 company is paid $ 10.8 million, which is 364 times more than the pay of the average staff, four decades ago it was 20-30 times more.

Some critics argue that although the pay of the average CEO soared, its however reasonable due to the fact that a) it’s a performance driven pay, since the return on investments for the shareholders also rises tremendously, b) the competition for market share is fierce and c) there is a scarcity and rivalry for great CEOs that would take the company to profitability.

CEO payAlthough the reasons highlighted by critics are all valid, however, they fail to clarify why the profits do not trickle down to all employees who would equally benefit from the soaring profit of the company, and why it’s limited only to the few at the top?

The widening pay gap of the few at the top and the blue color employees is growing. How else can we explain the Fortune 500 CEO’s pay increase of 1200-1800% from four decades ago?  I agree that CEO’s pay should be tied to the value they bring to the shareholders, but it should be measured by a long term such as 5 years, not only year by year performance. I believe the rising pay of the CEO has less to do with performance and more on the structure of their compensation.

Its also important to note that these CEOs may serve on the board, and may have some influence on the Board of Directors who are mostly other CEOs or former CEOs with vested interest to reward.

On the other hand the global search for cheap labor by multinational corporations has led to the exploitation of child labor, unsafe working conditions and low wages. The issue at heart is the question of fair wages and labor standards. (Ian Maitland, The great non debate over international sweatshop. British Academy of Management Annual Conference Proceedings, September, pp. 240-265. 1097).

Globalization and the need to attract foreign investment have caused some countries to relax their regulation on labor and environmental laws. The giant multinational corporations such as Nike, Wal-Mart and others that make their products in overseas sweatshops, such as China, Indonesia, Honduras and some parts of Africa have a stake to protect their interest, thus when the abuse of labor rights surfaced, they were forced to put in place measures on corporate responsibility in their international operations.

These policies were carried out primarily to safeguard their public image but not necessarily out of goodwill. The sole reason these corporations move their production operations to under developed countries are due to the availability of cheap labor, thus demanding higher pay erodes profits, and provides no incentive for these multinational corporations to outsource. However, it’s un-ethical for those companies to exploit poor workers for corporate profits; particularly the issues of child labor and unsafe working conditions can’t be justified. Critics such as Richard DeGeorge and Thomas Donaldson who are of the opinion that if multinational corporations are left unregulated it will lead to gross inequality in the open market and therefore exploitations will be ripe have a point. On the other hand, regulations could stiffen the prospect of investment. I however, believe as investments increase in developing countries, it provides opportunities for improving the living standard of those countries. So this could be a win -win situation. Foreign investments provide job opportunities to unskilled labor force that otherwise could be unemployed. The experience from Taiwan, Singapore and Korea proves this theory.

It also fits with the former secretary of labor and Professor of Public Policy at the University of California, Berkeley Robert Reich’s test for “low wage workers should become better off, not worse off, as trade and investment boost national income.” Professor Reich is known proponent of narrowing the income gap between the rich and the poor. Today, in the US the divide between the 1 percent and the 99 percent is growing as has never seen before.

Then there is the issue of male dominated corporations, the rare successful female that make to the top corporate ladder is seen as everything else but an accomplished women, in contrast male managers are characterized as successful men. (Alice H. Eagly and Linda L. Carli (2007). Women and the Labyrinth of leadership. Harvard business review).

Women are underrepresented in top managerial positions, although much progress has been made as we see women climbing the corporate ladder as executives and CEOs in fortune 500 companies, to name a few women CEO’s – Yahoo, Pepsi, HP and IBM, the progress is still dismal. There is no shortage of competent and educated women that can fill top managerial positions; however the prejudices and other challenges in the male dominated workplace are holding most women back.

There is no justification in this 21-century; women only hold 2-6% of the top managerial positions in fortune 500 companies. Moreover, women are not only being passed over for promotions but also paid less than their male counterparts.  Regardless of the job itself, whether it’s a common job for females such as nursing or male dominated fields such as Engineering, the common theme is that women are paid less, only 81 cents for every dollar that men earn.  I recall a heated discussion between the TV personality Rachel Maddow and a political strategist on gender pay gap, after the issue came up in 2012 presidential election which showed that although the pay difference is a fact, yet there are some segments in society who don’t believe it exists. There are inherent cultural reasons for these unjust practices. Prejudice is one key aspect. Women may be seen as lacking long-term commitment as they balance work with family responsibilities.

Organizations cannot survive if they do not tap into the talent of women; they will be missing tremendous resources that could help their success, namely the insight and knowhow of WOMEN. Thus, as we move forward in this fast paced technological and globalized world of business, with the rise of emerging economies, companies need to put deliberate measures in place to attract and promote women in top management.

Otherwise, perhaps it would take someone like Mr. Chamat Palihapitiya a Sri Lankan immigrant who grew up on welfare and is the current chief executive of Social capital, overseeing 1.2 billion  who shames his collogues in Silicon Valley by publishing diversity ranking to shape diversity in human resources in the work place.

Abdelkarim Hassan
WardheerNews
Email:[email protected]


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