There’s been so much talk recently about excessive pay deals for CEO’s and their executive teams that I felt it necessary to look at the topic from a slightly different angle; the one of change management.  

Fact: Over the last thirty years the western business world has witnessed average year on year rises in executive pay in excess of employee pay. During the last ten years this disproportionate growth has shown signs of becoming exponential. Deductive logic tells us that if this continues unabated it will begin to pose a real threat to the stability of our business structures and economy.

In difficult times, human nature indicates that the majority of people are inclined to form into likeminded groups, seeking safety in what they know, rather than engaging in creative open debate to establish new alternatives.  Assuming this is to be the case then in the near future we are likely to witness serious unrest; not necessarily between the radical left and ‘The Management’ but between a much larger generic group and a number of standalone executive teams that are seen to be pushing the envelope too far.  

However, the key obstacle to resolving this problem is that it is focused around an emotional debate based upon extremely complex concepts such as ‘fairness’ & ‘value’. One way of beginning to tackle it is to try to apply a classic change management approach called ‘suspension’. 

The idea of ‘suspension’ is to temporarily put aside one’s own view on the matter in question in order to open one’s mind to not only the views of others but, more importantly, to allow the possible formation of completely new ideas and concepts. In practice ‘suspension’ is far from easy to achieve but people that often use the technique, soon begin to master it and discover its effectiveness. Let me show you how it works by applying it to the executive pay debate, albeit on a very superficial level.

Firstly we need to identify the most emotional element of the argument, in this case, the topic of executive pay itself. Then we need to park all our pre-conceived notions of it in an imaginary lead-lined box and put it to one side. Having done that we need to examine the remaining question; how to attract and retain the right caliber of people to steer our corporations based upon new criteria? Here it goes…

Let’s assume that an international hotel chain is looking for a new Chief Executive Officer.  One can imagine that there must be thousands of people in the world that have an exceptional talent for high quality strategic thinking and reliable decision making. And that of these people, there must be literally hundreds that also have the necessary knowledge and experience to perform the role to the required standard.  (Note: we may also have to temporarily suspend our pre-conceptions on what experience is actually required, especially because job descriptions are often written in such a way as to deliberately restrict them to apply to only a handful of possible candidates).

Because there are numerous scientific studies supporting the belief that the majority of people are not driven by money as their primary motivator, I feel it is safe to assume that the majority of our international hotel chain CEO candidates would be very motivated to take on the vacant role based upon the job content alone.

We will, of course, need to apply a number of ‘scenario’ techniques where we imagine in some detail possible outcomes of taking a radical line towards the recruitment of our CEO and assess their impacts and what safety measures would be needed to safeguard the shareholder value of our group.

Now let’s re-introduce the emotive ‘pay’ topic. The complexity that is added typically hovers around the change manager’s biggest hurdle: ‘fear’. Fear, for example, of how it could be that a Chief Executive could settle for an award significantly less than his or her fellow executive colleagues; fear of the established view that ‘cheaper’ is somehow inferior. Fear that the status quo would be replaced with a dangerous unknown that could spark an uncharted course of events? And so forth…

History shows us that radical change in common belief systems usually happens in one of two ways. Either by a gradual acceptance of new truths and value sets, driven by need and opportunity (in much the same way that the ‘green‘ debate is taking central stage as it becomes embedded in both a financial and political context).  Or by extreme physical intervention. The second way is thankfully unlikely at this stage, and as we know already, mostly results in replacing one complex situation with an even bigger and more unsatisfactory one. 

In summary, I believe that the present economic climate could prove the necessary catalyst for changing the way executive pay is calculated for some companies, especially if it continues to worsen. However in order for this to happen, a new collective vision of proportionate fairness would be needed to replace our existing value sets. The vision would need to be expressible in some kind simple mathematical formula such as: ‘no one person in any organization should be paid more than ‘X’ times that of the average employee’, for example.  But to be honest, statistically, changing something so emotive and so complex right across the multi-national enterprise globe does seem rather unrealistic, even if it might appear very desirable to some.

Have a nice week,