The Sunday Times reports:
Workers are happy to see their bosses earn many times what they themselves take home, research shows. It explodes the myth that big pay gaps in firms cause low morale.
The research is this paper (pdf) by Andrew Clark. The theory is that when people see high pay for the boss, they figure: "I'll be earning that in a few years."
As a defence of big pay gaps, I'm wary of this:
1. If people are overconfident about their chances of promotion - either because they exaggerate their own abilities or the degree of meritocracy in the organization - their contentment will be founded upon irrational beliefs. I suspect that if you were to ask people in any firm, "what are the chances that you'll be CEO in ten years' time?" the probabilities will sum to much more than one.
Clark research is consistent with this. He finds that men are happier with bosses' high pay than women. And we know that men are more overconfident in economic life than women.
2. Clark's data come from Denmark. But we know that economic mobility is higher there than in the US or UK, suggesting that people really do have more chance of becoming boss there. So maybe we can't infer from this that pay inequality is good for workers in the UK.
Surely even you, Chris, know of the doctrine "pour encourager les autres". Us boss types are only taking these huge salaries and bonuses so you drones will feel good. We're doing a public service.
Posted by: Jim Donovan | March 16, 2008 at 10:00 AM
I think this is a case for H.L. Mencken's horselaugh. Sometimes the grid-square remover *is* an appropriate weapon.
Posted by: Alex | March 16, 2008 at 01:13 PM
That's very interesting. The research's findings are counter-intuitive, but I guess they makes sense. Most of all, I like your point about asking people in the company what they think the probability they will be CEO in 10 years.
Posted by: Scott Hughes | March 16, 2008 at 01:36 PM
It may also be because we spend years being told that a massive pay-gap is inevitable and necessary for a functioning society. Who would complain then? We only desire an alternative when we can envisage it, but a more equitable society is just not discussed any more.
Posted by: Chris | March 16, 2008 at 04:07 PM
Is it not the same sort of positive that a journeyman football player gets from have a far higher-paid superstar on the team?
My CEO earning many times what I earn at least suggests my company is or will make lots of money to justify it. Maybe "he is worth it" because of his superior ability. Even if I'm not seeing much of the money at least my job may be that bit more secure, means more opportunity for promotion and some extra cash may trickle down my way some time.
What I don't want to see is CEOs at other firms earning much more than my CEO. Is the company in a bad way? Is my CEO not one of the best?
Posted by: Bruce | March 17, 2008 at 12:44 PM
Just goes to show that the ideological indoctrination system is working, if people actually believe you can get to be Pharaoh by working hard building pyramids.
Posted by: Kevin Carson | March 22, 2008 at 05:25 AM