Pay Disparities Within Companies – How Big Should they Be?
I don’t really have time to flesh this out right now, and I’m doing this on the fly, but I was thinking of the disparity between the pay of top managers and line level employees. We’ve all seen the statistics, and heard the arguments from all sides, so I won’t rehash any of them. My thought, which for all I know is not original, there are five options:
1. The earlier pay disparity made more sense
2. The current pay disparity makes more sense
3. The earlier pay disparity makes more sense now, and the current pay disparity would have been more appropriate to use back then
4. The earlier pay disparity made sense back then, and the current pay disparity makes more sense now.
5. Neither pay disparity makes more sense, in the sense that neither has much of an effect on real outcomes
I’m going to dispense with number 3. I don’t think anyone believes that one. So we’re left with 1, 2, 4 and 5. While economic conditions change, its management’s job to impose some vision on companies, if need be, even moving the company out of one industry and into another. Should we, therefore, expect that on average (and perhaps even at an individual company level), over a reasonably long period (ten years, twenty?) to smooth out any short term fluctuations,
a. If 1 is true, then profit margins were higher back then
b. If 2 is true, then profit margins are higher now
c. If either 4 or 5 are true, then profit margins are about the same
So how do we break apart option c? Off the top of my head, I’d guess that if pay disparities are important to firm performance at this time, we would see companies with the greatest pay disparities (as a share of the company’s profit?) between management and line workers doing better at this time than others.
Anyway, that’s as far as I got right at this moment. Your thoughts?