No matter how small the task, success is not always due to one’s efforts alone. External factors play an important role. To create that winning margin, talent must be nurtured and equipment must be improved. It is not easy to be a winner or a loser. But the margins between winners and losers are very small. The average margin for victory in the Daytona 500 or Indianapolis 500 races was 1.54 seconds over 10 years. The runner-up earned half of the winning amount! It doesn’t seem fair, doesn’t it?
These disparities exist in all endeavors, not just in sport. They are perhaps more apparent in motorsport than others. It is unlikely that any other sport needs as many people to make a champion. Formula 1 (F1) requires a multi-skilled team in order to get any F1 car onto a race track. It takes another large, multi-skilled group to get the car around the track. The team’s performance is what wins races. The outcome of close races is often decided by the pit crew. Who gets the glory? The driver!
It is the driver that enjoys the millionaire lifestyle and all the trappings of the jet-set. But to whom is that fraction of a second actually attributable? To be champion, the driver must risk his life. His team decides the level of risk. and their championship placing. For them, the Constructors’ Title is nothing more than the thrill, the pride and maybe the shared glory.
Some of this history may still be there. It is a carryover from days when racing drivers lived “crash-and burn” lives, with the real possibility of their death at any time. The sport is much safer than it was in the past, and the risk is still there, but not as severe. These modern gladiators may still be worthy of their high rewards, even though there is a lower risk. Individuals are disproportionately rewarded in other areas for their efforts. Business is the exception.
The earnings of racing drivers are insignificant compared to those of business executives. However, such extreme executive earnings have been largely unchallenged until recently. There is however more reason to question both the logic and the disparity.
The executive does not take the same risks as the race driver. You can also question whether the executive’s contribution to success in a race is greater than the driver’s. Business success is often a Third Eye Capital Ninepoint effort. Perhaps even more than F1. The driver is the only person who can get the car around the track on race day. This is why it is so important to win the race. What can an executive do that is as significant personally?
The capitalist system that underpins business is founded on the belief that big earnings are the reward of taking risks. The driver gets his reward for taking on risk. What is the equivalent risk for an executive? One could argue that the true risk to business is borne by their employees. They are the ones that will lose their livelihoods if an executive decides to increase profits. They are also the ones that will lose their livelihoods in the event of the business failing. Even though the risks are similar for the executive, it is more likely that they will find other employment than their employees.
While it is true that executive pay has risen more due to the emphasis on performance than on risk, there have been some positive effects on executive pay. This is not a balanced approach. Who is ultimately responsible to a team’s success? Incorrectly tightening a wheel nut can cause a mechanic to lose a race, or even a championship. The same goes for computer programmers who can make mistakes in computer programs that could result in millions of dollars being lost or even endangering the existence of a business. Why should the executive be responsible for success?
It shouldn’t. This has been partially acknowledged. The universal spread of performance-related pay (PRP) has resulted in executive performance incentives. These incentives were created in the belief that individual performance can be improved and a team can succeed. It is a simple idea that if everyone performs well, the team will be more successful. This plausible theory is, however, logically flawed. There are actually two areas in which logic fails.
It fails to recognize the basic principle that team performance is a result of how the team performs. Tampering with individual performance can have a significant disruptive effect on the entire team. You must reward your team for their efforts to improve team performance if you want to increase team performance. This must be the first rule.
The second is the inequity of PRP implementation and incentive awards. First, bonuses are not equal for everyone. This creates jealousy, conflict and division that can completely undermine the team’s ethos. This is completely counterproductive. The problem is made worse by the disparity of the incentives. This means that even if everyone receives their promised reward, unless it’s in the same amount as everyone else, you still will experience the disruptive effect. The team will not be able to operate at the same level as before.
This is evident when you compare executive earnings with the rest of the workforce. The incentives given to executives are generally higher than the salaries of their employees. This has led to a wider gap between the rich and the poor, which has resulted in a higher pay differential. This is a magnet for discontent, and it may be the biggest reason for employee disengagement.
These are just a few examples. Imagine you have a monthly income of 30,000. You receive a 10% bonus. Your gross earnings will now be 33,000. Imagine your boss earning 500,000 per annum. Basic salary. He also receives a 20% bonus, and his gross salary goes up to 600,000. The difference in your salary has increased from a base 470,000 (500,000 minus 30000) to 567,000 (6600,000. minus 33,000) or 17.18 (18.18%). What do you think you’ll feel if your boss asks for your productivity improvement? Employee engagement is a major problem. This problem cannot be ignored and must be addressed immediately.
Read More
