On Pay Differentials
This is the month of April. Many employees will eagerly await their compensation revision. The pleasure and pain both come because of one simple act: Pay differential. High performers are paid more, others relatively less.
In the organisations this may be a big emotive issue, the difference in increment is not very substantial. It pales before what I am going to write about.
Take a medium size organisation. Here is what typically people get paid.
Contract worker Rs 6500 pm
Permanent worker Rs. 30,000 pm
Management Trainee Rs. 1,25,000 pm
Managing Director Rs. 50,00,000 pm.
So the MD draws 167 times a permanent workers salary. He draws 40 times the salary of a management trainee. And he draws a whopping 769 times the salary of a contract worker who is paid the minimum wage.
We may wonder what should be the right multiple. Is there any norm? I did some study and here is the result. The table tells us what according to various people was the right differential. This reflects the ratio between the salary of the lowest paid worker and the highest paid executive.
Please think what the appropriate multiple should be. Do leave a comment.
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Pay Differential standard suggested by
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Pay Differential
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Remarks
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George Orwell
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10
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John Pierpoint Morgan
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20
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Peter Drucker
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20
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Switzerland Proposal
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12
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The proposal was rejected
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Sixth Pay Commission
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11
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Based on hearsay, Needs confirmation
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Bhoothalingam Committee
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16
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Plato
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4
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David R Francis about major US Corporations
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379 in 2007 ACTUAL
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His article in Christian Science Monitor
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David R Francis about major US Corporations
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42 in 1980 ACTUAL
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His article in Christian Science Monitor
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Vivek
I wish my organization pays what is mentioned here 😛
But on a serious note, the higher the designations go… I have noticed, the higher the ego (most cases). To satiate that, companies pay more and more than what is actually required to be paid (or even deserved in some cases).
Another interesting fact that I got to know and also observed is that the rate at which the salaries at the top band grow (or grew in last 5 years) is significantly higher than the growth rate at the lowest band. Now, part of it may be attributed to higher attrition at lowest level and the replacements getting hired at lower level….but does the inflation not impact employees at the lowest band the most??
All this in a scenario where the organizations haven't delivered exceptional results in the last 5 years (overall economy growth of the country and across countries, in general, hasn't been impressive) – and this arguably gets influenced most by the employees at the highest bands! 🙂