There is a class battle going on in the diamond and commodities industry and in many businesses in this country and throughout the world. It is not taking place on the battlefield, but it has its casualties nonetheless. In this fight, the question of fairness is the fundamental point. The answers one hears on this subject are controversial, highly emotional, and dependent on how people view themselves and their place or position in the world.
As a rough diamond gemologist, I have formed my opinions based on my experience and my beliefs. However, it is not my opinion I am interested in, it is yours. I would like to examine one question of fairness and ask for your comments in order to bring clarity to this important issue.
For most people, it seems counter intuitive that someone who fails at his job should receive large sums from a company when he is fired. They would ask why we should pay failed executives their golden parachutes and why it is fair for top management to make outrages sums of money while the lower level workers make far less.
We may think it is insane for companies to pay failed CEOs millions of dollars even though they have failed to perform their duties profitably. This is especially true when these executives have caused the companies they managed to lose money. Additionally, when we hear the ever-growing disparity between the compensation of top executives and the wages of the lower level workers we may see this practice as intrinsically unfair.
One point of view is that it is extremely fair. Let’s look at the failed CEO first. When a publicly traded company or any large company seeks to hire top management they must first find someone with a proven success record. In addition, the candidate must have the education, skills, experience, intelligence, wisdom, intuition, social and economic acumen, leadership skills, business and political connections to successfully overcome the obstacles that can hinder a company’s growth or put it out of
One must honestly ask the question; how many people possess these attributes and have the ability to run a major company? Of those who possess this ability, how many are looking to leave the company they are currently running to go to a new company? The answer is; not many. This is why when a board of directors is looking for a new leader they have to offer their candidate enough incentive for them to come on board.
Top people are top people because they possess the above mentioned skills and qualities. This means they are very smart and very good at determining their value and have excellent negotiation skills. For this reason, when they consider going to a new company, they first determine what they will be giving up when they leave their present position. When they negotiate their contracts they take this and other important factors into consideration.
That is why boards are forced to pay tremendous salaries and to provide golden parachutes. Without stock options, parachutes and large salaries they cannot attract and maintain top talent. Once the board approves a contract, they have a legal obligation to fulfill it. If they signed a contract without a penalty for
failure, then it is the fault of the board. The CEO may succeed or fail, but regardless of the outcome, it is the board of directors who must determine the contents of the contract and it is the board that must approve the contract with the new CEO or other top executives.
So it is the board that is responsible for the large remunerations. And it is the board who must shoulder the responsibility when a CEO fails. It is their duty to take action to fire a poor manager. The CEO negotiated a great contract for himself. That is what he is supposed to do. The board does what it must. When it all goes the right way, people make money and jobs are created. When it goes the wrong way, companies go under and jobs are lost.
This system is fair because everyone who enters into the contract is a well-educated, experienced businessperson and feels what they are doing is best for the company. This is why it is fair for the CEO to receive the pay and benefits he receives. He negotiated his contract and the board approved it. If the stock holders are not happy, they can vote the board out and appoint a new board. That is how it works.
To address the issue of top management pay to those of lower level workers, let us consider the basic law of supply and demand. There are hundreds of millions of people qualified to be a janitor or can dig for
diamonds in a stream. Because of this, the pay is low. Obviously, there are many people to fill the shoes of these workers. The CEO who can run a major company has little competition and therefore his market value is high. This holds true for movie stars, sports heroes and anyone else who can do something that few others can do.
People have a market value. A market value is just that, a value based on the number of workers available and by the wages people are willing to accept to do a particular job or task. If you make minimum wage, it is because that is what you are willing to accept for the work you are performing. You may be forced to take the job because of circumstances and conditions. You may have skills, education and experience that deserve greater compensation. Unfortunately, these factors are irrelevant. What is relevant and important is what you are willing to accept as payment.
There is no argument from thoughtful people that all of us should be treated with respect and dignity. If you are not being treated properly, find another job. If you are not happy with your market value, do not complain; change yourself so you will be worth more in the market.
I recently wrote an article, Diamond Industry: Child Exploiter or Savior? In this article, I detail the use of child labor in the diamond industry. For those interested, it expands on the question of fairness in the labor market.
Louis Pearl G.G.
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