So if a software engineering company tried this and offered all their employees the same salary the average salary would be very low for good engineers. So why on earth would good engineer accept to work at massively under market value when they can just get double the pay at any other competitor?
30K everyone in company gets it.
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Soldato
This. The pay would have to be high enough to be competitive for the market salary of the highest position, which would mean the company would go bankrupt very quickly!
Soldato
I had this thought... People will work if the average is better than previous or not bother
it simply wouldn't work, out side of very niche areas, like suma occupy.
You can go the communist route and force every company ot have the same pay for every job, but that is flawed beyond belief as well. Once there is a mass exodus of skilled workers and the ensuing collapse of the economy, you then have the problem that difficult, taxing, dirty, dangerous jobs get paid the same as beer testers. I'd ditch my stressful software engineering job and work at a microbrewery tasting new beer batches. Except no one would be able to afford the beer in the first place 
As many flaws as capitalism has, communism doesn't really work at all. What does work is a compromise both. Minimum living wage is a starter.
One could also think of some bigger tax incentives for reducing the pay gap,e .g. employer taxes for the top quartile are relative to the salaries of the bottom quartile of workers. This of course opens up a host of problems, e..g simply getting rid of low paid employees and outsourcing
As many flaws as capitalism has, communism doesn't really work at all. What does work is a compromise both. Minimum living wage is a starter.
One could also think of some bigger tax incentives for reducing the pay gap,e .g. employer taxes for the top quartile are relative to the salaries of the bottom quartile of workers. This of course opens up a host of problems, e..g simply getting rid of low paid employees and outsourcing
I agree, I work at a small company where I mainly do customer services but I also deal with things like admin, post etc. where this would be fine.
A much better way would be to limit the max someone can earn, i.e. if the CEO can only earn 20x the lowest paid in the company per hour worked then all of a sudden wages go up (funny that).
It would ruin football though...
It probably wouldn't work. All that would happen is that outsourcing companies would spring in to existence that had a smaller differential and all the ordinary workers would be employed by one of them with the manager earning 20x wage. This company would then be "account managed" by a senior manager and the CEO would earn 20x the senior manager.
You aren't, you are just limiting the differential, you can pay the boss as much as you like you would just have to pay lower paid workers more to compensate.
Because it doesn't actually limit what they can earn, just how much more than the lowest paid.
If they pay someone minimum living wage for 40 hours a week that's £14,976 a year. Lets say a CEO works twice that and earns 20x more per hour, then they can earn up to £600,000. If they want to earn more than that they simply have to pay their lowest earners more per hour.
Do you think anyone does 20x more work than anyone else? I don't. Everyone a company employs is necessary, otherwise they wouldn't employ them.
Because there is enormous inequality in wealth and a model like this would allow those more valuable to the company to be paid (a lot) more without giving everyone else the bare minimum.
True, would be nice if it could work though, eh
If they pay someone minimum living wage for 40 hours a week that's £14,976 a year. Lets say a CEO works twice that and earns 20x more per hour, then they can earn up to £600,000. If they want to earn more than that they simply have to pay their lowest earners more per hour.
Do you think anyone does 20x more work than anyone else? I don't. Everyone a company employs is necessary, otherwise they wouldn't employ them.
Because there is enormous inequality in wealth and a model like this would allow those more valuable to the company to be paid (a lot) more without giving everyone else the bare minimum.
It would ruin football though...
It probably wouldn't work. All that would happen is that outsourcing companies would spring in to existence that had a smaller differential and all the ordinary workers would be employed by one of them with the manager earning 20x wage. This company would then be "account managed" by a senior manager and the CEO would earn 20x the senior manager.
True, would be nice if it could work though, eh
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It's totally arbitrary, I picked a number out of the air as an example, also it's not useful for the company, it's useful for society.
You could sure, with current laws. Ideally there would be new ones to address employment, i.e. anyone hired by X company must pay .05x the CEOs wages regardless of where they're being hired from. At the very least it would create more jobs for agencies
Why is it useful for society?
It seems it is useful for low skilled people as they can essentially enter a lottery when looking for a job and maybe get paid well above what their work is generally valued at.
But it also creates inefficiencies for companies and potentially affects both recruitment and retention negatively.
I don't even see how it is workable - how do you allocate equity for example? Does it affect annual allocations of RSUs or options or initial allocations/grants too? If initial allocations too then how would that work in the case of rapidly growing startups where you'd massively penalize founders and early employees who actually took on much more risk to build the company in the early stages?
It seems like pure fantasy and a rather flawed one.
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Because if the working and middle classes have more money they actually spend it, which creates growth. It would also pull more people out of poverty and raise more taxes (again, working and middle class people tend to actually pay their taxes).
Or companies can be more choosy when hiring lower skilled workers because they pay more (like admin, customer services, food prep, sales etc.)
Have allowances for start ups to offer bonuses above the earning cap within the first few years. Edit: Not to mention most start ups have very few employees, most of which would earn way more than minimum wage anyway.
And yet ideas like this, although not as extreme are already being implemented. http://www.timesofisrael.com/knesset-ups-tax-penalties-for-extravagant-bank-ceo-pay/
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I think many people here are looking at this the wrong way round. It is certainly true that by paying everyone £30k you aren't likely to attract a successful manager who is currently being paid twice that.
However, £30k is above the national average. For many very capable people, that wage would be a good step up. This company is unlikely to be short of applicants for its jobs, and should be able to pick the best of a quite sizeable pool of people. Better staff at the 'bottom' means less need for management at the 'top'.
It's not a scalable idea. It's unlikely it would work in a large organisation, and since they're relying on employing capable, self-motivated people who require minimal 'managing', it's not a model that could ever work for the whole of society. But it is interesting to see it in action.
However, £30k is above the national average. For many very capable people, that wage would be a good step up. This company is unlikely to be short of applicants for its jobs, and should be able to pick the best of a quite sizeable pool of people. Better staff at the 'bottom' means less need for management at the 'top'.
It's not a scalable idea. It's unlikely it would work in a large organisation, and since they're relying on employing capable, self-motivated people who require minimal 'managing', it's not a model that could ever work for the whole of society. But it is interesting to see it in action.
you don't know that it would do that, it could quite easily create a lot of inefficiencies and make UK companies uncompetitive
yes startups have very few employees initially but then grow very rapidly... that is where the flaw comes in - pay for senior execs is quite frequently largely equity based in fact plenty of tech billionaires in the US have a salary of 1 dollar a year
you've swept the issue under the carpet with a bit of hand waving re: exemptions (this isn't about bonuses but equity) but what happens after those first few years then - how do you allocate equity? Some founders will never take a high salary...
how about a completely different scenario - a farm that has been in one family for several generations do they suddenly need to give up stakes in the farm every time they hire a new worker? Suppose the farmer hires more than 20 workers, by default do the workers now have majority ownership of his farm?
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We're already noncompetitive, realistically. A Chinese company can pay their workers 20% of what we do and produce the same products.
Equity should be treated the same as wages, possibly have a combined limit higher than that of wages alone. So if equity counts as 25% of wages an exec could choose to earn £300,000 in cash or up to £1,200,000 in shares. If they choose shares they can earn over the theoretical limit but there is always the risk of losing it.
Again, these are completely arbitrary numbers
No, they would just have to pay more than the current minimum wage if the owners total earnings are over 20x that of the workers. If a farm is genuinely that profitable then I doubt it would be an issue, especially if equity had a higher limit due to the inherent risk.
but that lack of competitiveness only really relates to our low skilled workers who are better paid than Chinese workers already, what you're proposing messes with the compensation of skilled workers and the ownership structure of public and private companies which in turn affects investors too
you're skipping over the equity issue again - why is the founder of a tech startup liable to give away his equity but the farmer not liable to give away his?
Are you only counting annual grants of stocks or options here? In which case the founder and early employees can carry on making telephone number pay outs as their actual % of equity tends to go down as the company grows and take on more investment and more employees
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Soldato
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its a tricky scenario, i'm sure it'd be handy with no "chain" of management and approvals smothering your every move, you'd be able to get things done a lot easier.
however, with the freedom comes responsibility and in our arse covering world of business i'm not sure how that works.
managers do serve a purpose, but that purpose is to steer and guide and always keep an eye on the big picture, which is hard to do when your being bogged down in details, a business with no leader should surely have no direction, or be pulling in several directions at once with people implementing contradictory plans.
theres a reason why the vast majority of big organisations have top-down management structures.
however, with the freedom comes responsibility and in our arse covering world of business i'm not sure how that works.
managers do serve a purpose, but that purpose is to steer and guide and always keep an eye on the big picture, which is hard to do when your being bogged down in details, a business with no leader should surely have no direction, or be pulling in several directions at once with people implementing contradictory plans.
theres a reason why the vast majority of big organisations have top-down management structures.