Anyway, good news, just moments ago I came up with an improvement on salary history. Let’s take it for a test drive using my career thus far –
First job, first organization – underpaid
Second job, first organization – paid too much, then underpaid
Third job, first organization – paid too much
First job, second organization – underpaid
First job, third organization – paid too much
There’s a lot I could (and might) say about the above, but for today let’s talk about why I think it's inevitable that most people end up being overpaid and what we could possibly do about it.
One morning while I walked through Beacon Hill on my commute, I started reflecting deeply on greed. Greed is an example of how an unchecked impulse can create infinite chaos. A common example of this havoc is a layoff, the inexplicably tolerated practice where the mega-rich in the C-suite terminate employees to ‘cut costs’. We have no other choice! It's true, when greed is the cause, you often don't have a choice, and when greedy companies recreate the Icarus tale in their Endless Pursuit Of More, the layoff is when the wax starts raining down from the sun.
I suspect most people agree with me that many of society’s huge, chronic problems are caused by greed. The natural conclusion is that one way to improve society would be to restrict or eliminate greed. But how? I have no idea. I admittedly don't empathize with greed. I’ve always had more of a ‘take what you need’ mentality, and it’s very hard for me to wrap my head around the concept of acquiring more just because, acquisition alone being the end rather than the means (1). However, the more I thought about it that morning, the more I sensed that an important factor here was indeed we the non-greedy, our collective reluctance implicitly tolerating the uninhibited and allowing for the runaway examples of greed that I see as symptomatic of an ailing, failing society.
I’m still working out the rough first draft but so far I’ve identified a two-step process for how this works. First, compensation for a well-paid job – which I’ll define as above the median – is loosely rather than directly related to market value. This is because there are always people, those non-greedy folks, who would ‘do it for free’. Now, needs such as food, shelter, and Guinness mean ‘doing it for free’ is more theory than practice, but I accept it as evidence of the constant downward pressure on wages (2).
But a willingness to work for less is unrelated to ability. I would happily play point guard for the Celtics on a $1M salary just as the Celtics would happily pay their point guard $1M. But who would be happy with the results? Salary is only part of the picture, the Celtics also need to win games, so they pay Kemba Walker $35M. A team full of players willing to do it for less will lose to the team full of players who are hired for their ability to win. In theory, these winning players would earn market salaries. But when we factor in greed, I bet the result is overpaid salaries.
The pressure to overpay is likely far stronger than the downward pressure coming from those willing to work for less. One way this might happen is via the employee. If Kemba Walker suddenly lost all interest in basketball, the Celtics would offer more money to retain his services. Kemba would change his mind and play only if he were sufficiently greedy (3). The more important half of the equation is the greed of the other players. A team already full of greedy players would have demanded as much of the available salary as possible, likely leaving the Celtics without any spare money to tempt Kemba to change his mind (4). In a sense, this checks the impact of greed from any one player, the collective greed of each team member forcing the team to think carefully about salary decisions so that it can retain as many of its best players as possible.
This brings me to the second part of my working draft – the loose relationship between compensation and market value is restrained by the greed of others. The reason why the CEO is a millionaire is because the VP isn’t. The blame should go to the person with the greatest responsibility, of course, but germs and vaccines are separate matters. We know from a wide range of sources – the news, human history, even our own moments of insight and impulse – that greed is its own special beast, forever feeding itself until checked by an external force. But collective greed has the potential to be a positive force. It’s kind of like when you go out to eat with a few friends and one buddy devours the entire plate of cheese curds. One way to restrain him might be to help him get better control over his gluttony, but the sure method is to just dump equal portions of the appetizer onto everyone’s plates the next time the server brings out the food.
Collective greed means asking: how do we get the most, for everyone? It’s a far cry from individual greed despite seeming similar at first glance. The only real difference is restraint. Individual greed is entirely devoid of restraint and this lack fuels all the excesses of our current system. On the other hand, collective greed is only restraint, forcing each person to think – well, I have a little more now, but I should make sure everyone else got the same bump. A lot of our worst qualities seem to work in this way – harmful when limited to the individual, yet having the potential to change the world when harnessed as a collective concern.
Footnotes
1. When family-style means buffet dinner…
The closest I can come to relating is gluttony, having eaten and drank to excess
2. Do the same for less?
Many organizations have ‘salary bands’ where people doing the same work are paid over a range of salaries for reasons related to who-knows-what. This leads to an observable example of the exact scenario I describe – people willing to do the same job for less are often sitting right next to a person who was willing to work for slightly more. This arrangement usually ends when a local newspaper writes an embarrassing expose about the organization’s discriminatory compensation practices.
I put this into a footnote because although it demonstrates my point in action, it isn’t what I mean. My point isn’t about shortsighted firms taking advantage of people unwilling to negotiate for a higher salary because these firms lose in the long run. My point is that the CEOs who enable and encourage this practice know that the money workers leave on the table will magically float up the chain, greed being the only force that defeats gravity, this trivial cost-savings eventually paying out as top-level compensation packages through its direct relationship to increased profits.
3. It’s like when you tell your boss you have another job offer, right?
The interesting thing here is that the NBA has salary rules that prevent players from earning above a defined maximum, so it’s possible that in this hypothetical scenario Kemba would walk away simply because the Celtics would be prevented from offering him enough money to keep playing. If this sounds preposterous to you, consider that in 1993 this scenario was in play. Michael Jordan, the world’s greatest player, walked away from the Chicago Bulls and his $4M salary to play minor league baseball in Birmingham for peanuts. How much money did the Bulls offer him to change his mind? It’s unclear because I don't think there was such a thing as a 'maximum salary' in 1993 (the total salary cap was under $16M). They most likely just let Jordan make his decision without offering a raise (and if salary was the issue, Jordan could have raised the issue and the NBA would probably have resolved it in about twenty-six seconds).
4. Why not just do it?
The flip side is worth considering for a moment. Why wouldn’t Kemba just take a $1M salary? If he wanted to play for less, couldn’t he just do it? The short answer is that since it’s an individual decision, of course it could happen. But Kemba signing for $1M creates some weird problems. His low salary would of course enable his teammates to sign for more money. But more importantly, it would encourage other teams to test his resolve. If the Knicks suddenly offered him $30M, might he look at his paycheck the next time Marcus Smart takes a crazy shot and think about his salary decision? I think this is going on right now, and I'm not talking about the Celtics.
A hometown discount sounds nice, but eventually people want to feel like they are getting a fair deal one way or the other. A forward-thinking organization would ignore any offers to take a cut and just offer the highest salary upfront. If there are any concerns about the added expense, it should be written off as the price you pay for peace of mind.
