What if CEO Salary was dependent on workforce retention and job satisfaction?
I was listening to a Fast Company podcast about a recent study illustrating the disparities between CEO pay and the average salary of their employees.
Most CEOs’ income comes from stock options with the idea that they are most vested in the company’s success. But, especially in today’s dystopian consciousness, this is flawed logic that overlooks the value of labor and the reality of non-founder CEOs, meaning they are hired into a profitable, public company, not building one.
So what if CEOs were incentivized to be effective leaders and employees were incentivized by the company’s success?
Here are 3 ways leadership and labor impact retention and performance:
Turnover is expensive and is mostly tied to bad management. Voluntary Turnover can cost companies millions of dollars a year. Worse if they’re losing high performers. Average voluntary turnover is 13%, of which 3% is high performers. Turnover impacts morale, which can impact performance. What drives voluntary turnover? Bad management, Bad pay, and limited growth opportunities. I’ll talk more about management and leadership later this week.
People are motivated to perform when they are invested in the outcome. This is not a new concept or practice. There are many businesses that offer class B stock options as incentives to high performers and rising leaders. This is a form of profit sharing that is directly linked to the company’s performance. A mutual incentive if you will. Even if you don’t offer this, finding meaningful incentives that improve employee morale, satisfaction, and performance requires strong executive leaders who can make those strategic decisions. In this case, stock market performance is not an accurate measure of strong executive leadership.
I am not a market analyst, but from what I understand, market performance is mainly driven by supply and demand. While there are short-term variables, sustained market demand for shares is heavily influenced by confidence in the company, consistent productivity, and relevance - you cannot remain relevant without innovation and the skills to pull it off (read: labor),you cannot sustain productivity without labor, and reputation, reliable performance, and strong leadership are what drive confidence.
In other words, what drives a company’s sustainable profitability is a combination of executive leadership and having the resources - primarily labor - to leverage social and fiscal capital and deliver consistently. Even with the advent of AI, you still need highly skilled labor to use it ethically and effectively.
We are in a period of high inflation that isn’t likely to go anywhere any time soon. We also may be entering what I think of as a fallow period based on long-term market cycles. Meaning little to no economic growth for a few years before we enter a season of more rapid market growth. This fallow period is a time of structural and institutional change and resources like labor and capital will be in flux.
Is your company resilient enough to adapt and evolve? Do you have strong executive leadership skills to strategically navigate change? Are your priorities aligned with the old guard or the new guard? Your capital may increasingly depend on your humanity, not just your profits. How will you take care of your people, especially if or when profits stagnate?
This week I’ll be sharing more on executive leadership as part of a 7 week series to help you align your priorities and navigate change. In this series I will be focusing on knowledge, stories, and skills to unlock creative blocks, foster harmony with work and life, and work your magic. Stay tuned!
