HE is, in my opinion, close to God in the world of business. But I still find it real hard to believe that Jack Welch, soon-to-retire CEO of GE received a salary – excluding share options, perks, et al – last year of $125.3m. Ten years ago he drew a salary of $4.8m. Hardly the minute incremental increases we’re used to, is it?
The biggest increase over the last 10 years went to the CEO of Citigroup, previously Citicorp. The top line soared from $1.2m to $150.6m, a truly awesome pay rise.
We’re hardly on the same level back home, but Scottish directors of listed companies earned an average of £180,000 more in 2000 than in 1999. Ramco Energy’s Steve Remp saw his package increase by a whopping 583% to £3.6m from £529,000.
And it got me thinking: how do you judge what someone is worth? There are no set rules. Is it performance-based? Is it based on previous effort and future potential? Does like or dislike come into it?
On a smaller scale than the likes of GE and Ramco, obviously, what price do you put on an employee, a fellow member of the management team, or yourself? How do you justify it? At what point do you say he or she is not worth any more than that? And then how do you tell them?
It tends to be more of a problem in an entrepreneurial company where attracting quality staff in the early start-up phase is an uphill struggle. Entrepreneurs, usually consummate salesmen, will offer an attractive package to recruit in the first place – there will be talk of an exciting environment, challenging and innovative work, lucrative share options, (or not as the current case may be).
More often, cash-strapped entrepreneurs will employ people with little or no experience, offer them an opportunity they might not otherwise have had, and then tie them in with promises of training, a higher salary, an exciting environment, and the ubiquitous share options.
But as the company grows in value, not just financial worth but reputation and credibility in terms of the teams within and the types of client without, and the salaries of your employees grow too, it’s difficult to ensure that you are paying the going market rate.
It’s easy, in good times, to be too generous, and offer more and more money. But what happens to those inexperienced individuals who joined with no qualifications? At what point do they cost more in value than they deliver? And if the proverbial hits the fan, how on earth will these guys and gals find a job with a similar package? Undoubtedly, they will have altered their standard of living in line with the nice new salary; they will probably have new cars, a bigger mortgage, and kids in private school.
So consider this: have you been fair in paying ordinary, average workers over the odds, when in reality, they couldn’t earn that much in the open market?
The CEO of Citigroup will find it hard to scoop a similar package when he moves on. With a salary like that, he might not need to find another job. But in all probability, your employees will, and your generosity may turn out to be more of a burden than was ever intended.
So think really carefully when establishing what your people are worth? Ensure you can justify their salary to your executive board (if you have one) and to your other employees.
This article was written 10 years ago today, but I think the question is still valid; what are your people worth? I’d be really interested to hear your thoughts about value and the justification.