Sunday, March 13, 2011

The real economic value of the privileged: Working hard or hardly working?

In the first article in this series, I suggested we need to take a close look at the real value to our economy of people at different income levels. In the second article, I explained why people at middle and lower income levels return a greater percentage of their income directly to the economy than do the highest earners, which keeps both government and business machines turning efficiently. Still, there’s another factor to consider when determining the value differences of people at each income level.

For several reasons, the person at the top of the income ladder is also the one whose labor contribution makes him the biggest drain on the economy. To begin with, there’s that large chunk of his income that doesn’t go directly back into the economic machine, at least not right away. Then there’s a more ephemeral measure, the economic value of production from his labor when compared to that of the folks who work lower down the corporate ladder. That’s where the “protect the rich and they’ll take care of the rest of us” philosophy really goes astray.

What is the millionaire’s real economic value to the company that pays his salary when compared to the value of folks working on the line? To put it another way, how much effort would the CEO have to put into his job to be worth a high percentage of the millions dollars he receives each year? If he doesn’t deliver enough to provide a profitable effect on the company’s real income--and I’m not talking about creative bookkeeping here--then he’s stealing a huge chunk of dough that he never earns.

In any well-run company, workers produce products or services at a rate that makes them worth more to the company than the value of their salary and benefits combined. The extra money earned above their take-out is called “profit.” In a well-run business, the more efficient employees the company has, the more profits the company is likely to make. But the profit value per employee tends to be lower at the higher levels. That’s been the accepted norm because executives are traditionally expected to provide leadership and creative ideas.

Leaders or Charlatans?

The problem with paying inflated salaries for people at the top to lead is that the real production leaders, that is, the people who make sure the work gets done, are usually the workers themselves and their immediate supervisors. As people move up the chain, their value comes less from leading people and more from setting policy and providing creative direction so the company can move forward into the future. That’s where higher-paid executives in many American companies have been dropping the ball in recent decades.

For policy, consider two issues regarding employee behavior: bullying and sexual harassment. Effective leaders in these areas will set and enforce rules that protect the rights of every employee and client. If problems arise, good managers provide a means of discreet reporting and investigation, and any judgment against wrongdoers is handled quickly and efficiently in order to ensure the behavior is not repeated and victims, real and potential, feel completely safe.

Unfortunately, companies have been more interested in protecting their reputations instead of stopping the bad behavior and protecting victims. In a shocking number of cases, the person who suffers most at the hands of management has been the victim who dares to report the problem in the first place. In the long run, this lapse costs companies money, which further diminishes the true value of any executive involved in such a crime.

It also means value is lost in any employees who are victims of harassment of any kind. If justice ever does prevail, the company loses by having to pay the victims, who usually take the cash and don’t return to work at that company again. That means the company must hire one or more new employees, train them, and possibly lose them later on for the same reason the earlier employees left. So, real leadership skills are too often lacking in many of the high-paid “big brains” who receive tons of money to lead companies into an expensive legal ditch.

Creators or Dinosaurs?

Then there’s the need for creative thinking, delivering new ideas that move a company forward in the market. One of the best examples--or worst, depending on your point of view--of the lack of creativity has been the American automobile industry in recent decades. While auto manufacturers in Europe and Asia were designing and building more and more efficient vehicles, stodgy U.S. companies continued to turn out gas-guzzling behemoths that cost a mint to operate and blew tons of filthy carbon into an already polluted planet.

As sales of American autos went down each year, these companies cut back on workers’ benefits and eventually their jobs. But contrary to economic logic, even as they were running their companies into the ground, the salaries and bonuses of executives at the highest levels mushroomed. Like the bankers, most of these miscreants finally came crawling to Congress with their hands out to grab the taxpayer green that would keep their operations afloat. Only when they’d received this new capital from the public trough did they finally begin turning out the green products they should have been producing since the first oil crisis in the 1970s.

The conclusion, then, can only be that many of the highest-paid corporate “leaders” need to overhaul their attitudes and start moving their companies in the right direction, in both policy and creative management. If they won’t do that, the only honorable thing for them to do is take advantage of those “Golden Parachutes” that were assured them when they came on board and let somebody with real brains take the helm.

Self-made or User?

And while I’m on the subject, this is an excellent time to explain one more thing about millionaires and billionaires: Have you ever heard the term “self-made” man? Or woman, since success certainly isn’t limited by gender, especially these days. Fact is, there is no such thing.

No one could ever build a successful business without depending on the efforts of hundreds, or even thousands, of loyal hard-working employees. The lower-paid workers deserve as much credit for a company’s success as the person at the top. Even someone who’s spent his life in a cave in the woods while turning a creative idea into tons of cash needs some kind of help to do that. Maybe it was the animals that did it, but it certainly couldn’t be that one person alone.

Whenever I hear the term “self-made,” I’m tempted to look for the big guy’s footprints on the backs of a horde of “little” people. No one can build a multimillion-dollar business alone. There is no such thing as a self-made person. Period.

Next, I’ll discuss the real meaning of several economic terms that are woefully misunderstood and misused in current political discussions. Stay tuned.

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