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  • Is Money the Only Currency with Value?

    Published on Wednesday, July 11, 2012

    A number of years ago a joke was making its way around a number of companies (especially in California where I live) about people being paid in psychic income. That is, they received benefits at work that included things like office snacks, the ability to travel, training and development opportunities, free lunch on Fridays, etc. These non-cash, work related benefits were said to provide an additional form of income for people beyond cash – and people were supposed to be better off because of this.

    The joke that was told about this though said something different. The joke was of the implication that the ‘boss’ was actually fooling people by extolling the virtues of psychic income while at the same time lining his or her pockets with more of what was really valuable – cash.

    Money is supposed to represent an exchange mechanism. Money allows the people who have it to exchange it for something else they might need or want.  For many people their ability to exchange money for things they want is quite limited because they only have enough to exchange for the things they need – food, clothing, shelter – pretty basic stuff. The things they want – health insurance, savings for their future, books to read, free time – are out of reach. Even though many of us consider these to be basic human needs for others they are simply ‘wants’ that they can’t have.

    There are many social, economic and environmental dilemmas facing this world right now and trying to figure out how to respond can be overwhelming. Some people put their head in the sand and try to pretend that the dilemmas don’t exist. Others hide behind old-fashioned arguments for practices that, simply put, are incredibly destructive.

    For example, that oft-quoted line about a company’s only responsibility being to make money for shareholders is used in a round about way to justify the pay packages of senior executives. The argument goes that the important leaders at the top would leave if they didn’t get the pay packages they do, the companies are making money for shareholders, therefore the pay packages are justified. Never mind the reality that some people seem to get paid a lot even when their companies lose money – and that the turnover that someone should really worry about is from the rank and file, the key people and teams who make things happen inside organizations. 

    Is anyone challenging this round-about executive pay argument? I think so, and I think lots of other companies could learn from these examples. Among the 100 Best Companies as a group, 70% of employees believe that they receive a fair share of the profits made in their organizations, and 77% believe that people in their organizations are paid fairly for the work they do. This data is from anonymous employee surveys administered for the 100 Best Company selection process from 2004-2012.

    For comparison, we can look at the responses from employees in the Lower 100 companies – good companies who apply for the list, yet don’t make it. These are companies in which many things are working well, senior leaders are showing an interest in improving the quality of the workplace and employees are treated with a level of respect still missing in many workplaces.  Yet perceptions of fair pay are not as high for people who work in the Lower 100 companies as among the 100 Best. Specifically, 49% of employees believe that they receive a fair share of the profits made by their organizations and 62% believe that people are paid fairly for the work they do.

    Based on the figures above we can see that on average, in a 100 Best Company, 21 out of 100 more employees perceive that people receive a fair share of the profits. Every company on the 100 Best list has at least 1000 employees so that actually means that at least 210 more employees out of 1000 perceive that profit sharing is fair - and 150 more out of 1000 believe that people are paid fairly. These are huge differences.

    Does it matter? I think so. We know that the publicly traded companies on the 100 Best list significantly outperform their peers. From 1998 to 2012 – looking at the entire history of the 100 Best list as published in Fortune magazine - the Best Companies have achieved an annualized return of 10.32%, while the S&P has achieved an annualized return of 3.71%.  The 100 Best are doing a significantly better job of making money for their shareholders.

    When we look at the performance of the 100 Best and the Lower 100 we see similar differences though not quite as stark. From 2004-2011 the 100 Best achieved an annualized return of 14.97% while the Lower 100 have seen an annualized return of 9.88%. A notable difference in performance that many company leaders claim to be trying hard to achieve.

    Perhaps an important first step toward achieving better performance would be to address questions of fair pay and profit sharing, including executive pay. Employees at the Best Companies are telling the world that pay and profit sharing matter. But it’s not just about money. It’s about fairness.

    Senior executives at 100 Best Companies are not suffering from a lack of money due to inadequate salaries, and they receive generous profit sharing packages if their companies offer it.  Just like at most other companies. Many people who look at executive pay would say they are paid fairly.

    The big difference between the 100 Best Companies and everyone else is that at these companies many, many employees believe that they themselves are also paid fairly, and that they receive a fair share of the profits made by the organization.  And their companies, as a group and over time, are making more money for shareholders.

    So is money the only currency with value? I think not. I believe that ‘fairness’ is a currency of tremendous value that is too often ignored. People looking to run profitable companies – Boards of Directors, CEOs, senior executives, venture fund managers, entrepreneurs – would be wise to look at how well they understand and utilize the currency of fairness in their organizations.

    Here’s a challenge: if you are well paid, and in a position to say yes or no to receiving more pay and a greater share of the profits from your organization, before you say yes, look into the fairness with which pay and profit sharing are distributed within your organization. If you are not close to the numbers discussed above from employees at the 100 Best Companies – those companies beating the pants off of everyone else in the stock market – then perhaps you should say no to more pay and profit sharing for yourself, and look for ways to provide more pay and profit sharing to others. You will likely suffer very little, and others could benefit greatly – in both the currency of money, and the currency of fairness.

    If you are a venture capitalist, looking to make your next successful investment in a company you hope will be profitable, go public, and provide you with a significant return on investment, make sure you understand how the currency of fairness is distributed within that company in terms of executive pay relative to everyone else's pay before you invest.

    If you are a Board member, especially one on the committee concerned with executive pay, and you are looking to uphold your fiduciary duty to shareholders then you absolutely need to be well versed in how the currency of fairness is distributed throughout the organization. The information cited above is public knowledge and has been for a long time. The publicly traded 100 Best Companies make more money for shareholders and more people who work in those organizations – from hourly clerical up to senior executive - believe that they are paid fairly and receive a fair share of the profits than in other organizations.

    If those who can do something about this take up the challenge then the joke that gets told about psychic income won’t be a joke any more.  People will get both the cash value of money and profit sharing, along with the psychic value of fairness. From the examples of the 100 Best Companies we can assume that everyone will benefit.

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    For more articles and research papers that document the benefits of being one of the Best please visit the Resources section of this website.

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