CEO/Employee Pay Ratio - more

CEO/Employee Pay Ratio - more

Economic Management

Bubble Living

Remember the story of the boy in a bubble?  Actually, it seems to me we all live in bubbles.

We sometimes refer to that as being “in the box” or “seeing the world through our own lenses” or “seeing the world in our own colour of glasses”.

I prefer the image of living in a bubble.  Bubbles have interesting qualities.  At one end of the spectrum are bubbles with transparent, permeable walls.  At the other end are bubbles with opaque, thick walls.

It seems to me the permeability and transparency of the walls is completely determined by our awareness of them and our deliberate efforts to make them what they are.  When we are unaware of them they may evolve into either thick or thin walled bubbles.  When we are aware them, the thickness of the walls may be a deliberate choice.

When we are unaware of the bubble we live in, we may go about our business in whatever way we know how, without any idea of the impact our lives have on the world around us, including the people around us.  Thus we may know ourselves well, but not appreciate our place in the world and the impact we have on the world and its impact on us.

Alternatively, we may be aware of the bubble we live in and make deliberate decisions about how transparent and permeable the wall is.  We may even decide under what circumstances permeability and transparency will be increased and reduced and for whom.  Here we may know ourselves well and appreciate the impact we have on the world and its impact on us.

My guess is that the former is the more common situation.

What’s that mean in the context of CEO/Employee Pay Ratio?

Well, the CEO has worked hard to reach that noted level of achievement, the “C suite” or chief executive level in an organization.  The society of C level people is filled with other C level people from within their own organization or from many organizations.  These are busy, earnest, hard-working folks whose job description includes C level tasks often done in collaboration and competition with other C level folks.

They are, therefore, likely to see themselves relative to their peers.  There are tiers within the C level world, roughly divided along lines of size of organization in which they occupy the C level.  Thus the larger the organization, the larger the C level office, the greater the C level compensation.  The competition among them has them further ranking their economic worth as being reflected in their relative compensation levels.

The point?  The CEO/Employee Pay Ratio is not their focus.  They know they get paid more than average employees for whatever reason, including tradition.  It is almost certainly not a deliberate decision to have C level pay be 100 or 106.5 or even 331.72 times that of the average employee.  It is a deliberate decision to have C level pay be relative to the pay of other C level people and the competitive instinct drives each executive to be compensated at a level greater than fellow C level executives.

When we consider that situation in the context of how C level executives and their Board of Directors executive compensation committees are populated (as discussed in the previous blog entry “ CEO/Employee Pay Ratio”), we see the tendency to have ever rising C level pay scales as organic outcomes of their working environment.

The phenomenon is then more an outcome of positive forces, seeking greater responsibility and competing with peers, than negative forces, keeping the average folks down.

It’s just that, in my opinion, it has spun out of control because of the lack of appreciation of the impact they have on the world around them.  The C level bubble serves to isolate, making the impact of these decisions less obvious or even invisible to C level executives themselves.

The impact on the viability of the organization will also be negative, perhaps even in the relatively short term.  The impact of this discrepancy on the world is negative.

In the organization, a disincentive is created wherein, whether business os “good” or “bad”, the average employees see the C level compensation continuing to escalate and be a world unto itself, while the average employee sees outsourcing, fierce wage competition in a race to the bottom and lay-offs.  This makes it difficult for employees to remain motivated, innovative - productive.


For the world or society, a divide is created wherein people do not see themselves as in it together, furthering the commonweal.

Furthermore, in society, we have fewer and fewer people with disposable income to use to buy stuff, lowering the demand for stuff that drives all business throughout the consumer goods supply chain.  This lowering of the tide lowers all boats, making all businesses ever less viable.

The bubbles then burst to no one’s benefit.