After pay, benefits are the second-most-obvious element in a compensation package. In the United States today, no mindful individual can feel financially secure without health insurance. Most employers have acknowledged this fact and make group health insurance part of their standard compensation packages. Likewise vacation time, sick leave and some form of insurance against disability are important to peace of mind. Holidays and some flexibility in scheduling enhance family life and help employees create balance in their lives.
Beyond salary and benefits are the more abstract but equally important elements that make an employee feel valued. Does the staff have access to management? Do managers listen effectively? Does the management, in turn, share meaningful strategic information with the staff? Are all employees aware of the company’s philosophies, strategies and tactics? Are achievements acknowledged and celebrated?
More controversially, are standards for productivity and demeanor established and upheld? Nothing undermines the morale of dedicated employees more insidiously than a general tolerance for a lack of dedication. Great team members want to be held accountable. And they want to work with other people who feel the same way.
In discussions of compensation we shouldn’t neglect the shareholders. The business’ owners, whether they are scattered across all the equities markets around the world or in the office next door, need to be fairly compensated for putting their capital at risk. How do managers and stockholders define a fair return? Generally, it’s defined by what the shareholders require.
For better or for worse, the question of whether a business is fairly compensating its stakeholders – owners, employers, suppliers, etc. – is determined by whether those stakeholders FEEL they are being compensated fairly. Compensation is a compilation of many different resources transferred through a business. If the employers, managers and owners – all the stakeholders – feel good about their participation, then I think the compensation can be judged fair.
Some managers will succumb to the temptation to create this sense of fairness by overpaying shareholders, employees and suppliers. One can often silence criticism, at least temporarily, by paying a little more. A lot of people have ruined businesses that way. When costs run amok and a business fails, none of the stakeholders is pleased with the outcome.
My colleagues and I have to define fairness in our own business through the traditional process of negotiation. We are called upon to negotiate rates of pay with our employees, to resist demands for raises unless there is evidence those raises create value for the enterprise, to negotiate aggressively with suppliers to get the best possible prices and to persuade our shareholders that ongoing investment in the business will create more value in the long run, even when it reduces dividends this year. The definition of fairness is renegotiated every day in uncountable different conversations all over our offices and boardrooms.
In this process and in the very fundamentals of capitalism, some people find a kind of violence. When we’re negotiating, we are attempting to move resources from one place to another through force of personality, intelligence and strategy. It can be compared with war, although my colleagues, suppliers and competitors are generally not killing each other.
Capitalism distributes power in the form of money. People with money have more power then those without. It’s not the only source of power in our society, but it may be the primary power source.
So if we compare our capitalist society with a model society in which power is distributed equitably, then we are disappointed. The distribution of power and money is not perfectly equitable. There is even a kind of violence in the way entities compete for money and power.
But where can the historian find a perfectly equitable social structure? Small tribes may have been run by consensus, here and there, and some people may idealize the stone-age lifestyle, but if you were a member of a competing tribe and happened to stumble into their circle of firelight some evening you might find the welcome less than equitable.
Communism and socialism are idealized, too. The fair and equitable distribution of resources is the unifying tenet of communism and socialism. But in practice people in socialist societies have competed for party rank and favored positions within the bureaucracies. They have redistributed resources based on rank and position. They have harmed each other to achieve rank and position. Where human beings compete for power and resources, fairness is always questionable. I challenge any student of history to cite a perfectly fair and equitable human society at any time since Adam and Eve.
Our form of capitalism is, at least, dynamic. It provides the opportunity for enterprising people to improve their lives. It is not unique in this quality, but its potential is proven. So if our specific capitalistic enterprise is not fair in every detail, it at least provides us with tools for pursuing fairness. When an individual or an organization asks, “Is it fair?” the answers can provide a bunch of opportunities for constructive engagement.