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Originally Posted by oompa loompa
I'm going to go with don here for the most practical best answer. If I remember my microeconomics correctly, there are a couple of justifications for why managers (should) earn more.
The first has to do with the fact that there's something of a fundamental gap between opinion of the wage-earner and wage-setter on whats the right wage. first (for arguments sake) i'm taking a look at wage in a broad(er) manner, including the prestige, responsibility etc. ( of course, this would imply that certain jobs attract certain types of people based on what they want out of a job). Unless both the employer and employee know that they both know exactly how good the employee is, there'll be some kind of gap between what people earn and what they think they should earn. If the employee thinks hes earning less than he should for the work he does, he'll shirk, and by shirk i mean he might work less hard, work less hours, steal money, w/e. Since finding that information out beforehand is impossible (or lets say, prohibitively expensive), you gotta enforce the rules within the organization post hiring. But then the same problem arises; how do you enforce the enforcers? Obviously, by increasing the severity of consequences, but more importantly, by linking the managers wage to the overall size, and profits of the company. The regular employees on the other hand, are paid according to the 'output' they produce. This problem is confounded for government jobs; there's no profit to peg wages, and there is at best a set of fluid goals to use as benchmarks. That was a bit of a tangent, but anyways since the management has the power to set the wages, this is one of the more popular justifications, at least in standard economic academia. Theres a lot of brain-frying stuff on corporate management models that I have little no expertise in however.. its explained a lot better in the original article, so pm me if you want to read it
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What you say I think is the generally received wisdom in management. Personally, I don't agree with it. I think the logical end point of this kind of setup is a "police state" mentality, where people only do what they are supposed to do, and only put in effort out of fear of losing their jobs and not out of any genuine desire to improve the company. People working out of fear will do anything, including activities that may harm the company. People working out of "love" will go above and beyond the call of duty.
To get good output from employees, I think 2 ingredients are required: Solidarity and Mission.
Solidarity: Employees must feel a sense of solidarity with their fellow employees, managers and the company itself. They must feel that "they are on the same team". This requires trust, trust in the idea that the company has their best interests at heart. If the company doesn't trust them, why should they trust the company? If the company will throw them away at the soonest convenience, why should they display any loyalty to it? The idea of increased pay for good performance is not about greed (good performance is rarely driven by
greed, stealing money on the other hand...), it's about fairness. If I work hard and I achieve something that makes the company lots of money, is it fair that the shareholders benefit while I walk away with nothing? If this kind of thing continues the employee will feel like his work is only being exploited.
However, merit based pay can often lead down a road of greed, where employees try to deceive their managers into thinking they work harder then they actually do, while downplaying how hard other employees work (as any bonus the other employee recieves is a bonus I can't get). Instead, I think all members of a particular team should all receive the same pay, and the same performance based bonus. That way it's very clear from their own paycheck that they will all succeed and fail together. If possible all employees in the entire company should have the same performance based bonus, from the highest CEO to the lowest line worker. The line worker should feel solidarity with his CEO, as should the CEO with his line worker.
Now Solidarity alone isn't enough. I think you also need the organization to have a genuine sense of mission. Now it doesn't need to be saving the world (though that always helps), but the organisation does need to be permeated with the idea of customer service. That the organisation is infused with a mission to provide the very best service/product to the customer, the most efficiently, at the lowest cost. The customer should not be a walking bag of money waiting to be conned.
You can see elements of what I'm talking about with certain very famous companies, for me the stand out is Toyota,
their takeover the NUMMI plant in California is quite interesting.
As I see it, companies begin to fail when the managers separate themselves from their employees (and even look down on them...), and employees become apathetic towards the work of the company as a whole. It's a question of motivation, rather then greed. If you create the right kind of company culture, employees will be willing to go so far as to voluntarily cut their own wages if they see the company getting in trouble. That kind of loyalty and commitment is rare in the world of fortune 500 companies...