I received a tip off about an article discussing a suggestion for the legislation of salaries in Switzerland. As you may know there is a special rule in Switzerland whereby the citizens can call for a referendum, if 100.000 of them sign a petition. In this case it is a suggestion to limit the differential of salaries in a business. The suggestion is to limit the ratio to 12:1, meaning that no one can be paid more than 12 times the amount of the less paid.
At the beginning of the year I read an article in Bloomberg Business Week about a survey of the differential in salaries, between the highest paid, almost always the CEO, and the average salary of the workers. Some of the companies had a ratio of 1.200:1 and up to 1.400:1. That means that the CEO earns 1.400 times more than the average salary of those in the organization who earned the least. This also means that the CEO earns more in one month than the co-workers do in several lifetimes.
Without going into the political discussion about whether we should have a differential in salaries or not, and how large this should be, I can only reflect that this situation is a heritage from the old way of looking at an organization. That is, looking at the organization as an hierarchical structure, whereby the value of a person must be higher at the top of the structure than it is at the bottom. All responsibility and mandate is floating upwards, where the CEO has all the power, and thus should also have the largest salary of them all.
In the modern form of organization this is no longer completely true. In a modern organization’s structure there is a full focus on delivering value to the customers. Self-managing teams create that value. Teams contain people that voluntarily have applied to do the work and they may switch team if they like. The team members select the leaders for the teams. No one is appointed to a position. ‘Position’, by the way, is a word not used in a modern organization. ‘Roles’ is the word in the modern organization.
The old structure was built when the co-workers were not educated and they did not know how to read or write. Many just transferred from working on farms. They then needed guidance to perform their tasks. The most skilled where promoted to be supervisors, and so on up in the hierarchy. Today people are well educated and many have several years of experience, and the tasks today also require a high level of skills, so the co-workers know a lot more about performing their tasks than the supervisor and managers.
Future organizations will have even more self-managing teams working according to set processes to create a successful customer outcome. These teams will contain even more knowledge, experience, responsibility and mandate. That means that the leadership will change radically. This will be very soon – not because the team of managers and leaders want it to, but because it is the only way to survive.
A fact on which to contemplate, is why at the same time as the pressure on a new form of organization has been increasing, the salaries for the top of the top has increased radically in the same period. One can only think that it is “grab what you can, while you can” syndrome.
How eager is the hierarchical structure of managers to actually change the form of organization, if they believe that they themselves are going to pay the price, by giving away parts of their salary? The question at hand is; What is most important, my own remuneration and power, or the business?
The new form of organization that we can see around the corner does not of course run without leadership. It is just that the leadership is more distributed than before. Salary wise it means that the same amount of money maybe paid out, but this will also be more distributed. More people will earn more money, and a few people will earn a lot less.
I believe that value put into the processes that give the customers their value, will be rewarded. That is the new differentiator of salary, not the hierarchical level.
How does this affect your organization?
Please share and comment.