Paying bonuses to management while firing workers
Before I start provoking people here, we need to set a baseline:
Firstly, Sweden has been socialist for a long time. Not only politically, but mind set wise as well. There is even something called the “Jante” law, which is easily summed up by “you shouldn’t think that you are special”. Great stuff, huh?
Secondly, the tax pressure practically mandates that anyone who makes obscene amounts of money must move away. All our sports stars are in Monaco, for example.
Thirdly, there is no understanding for the added pressure of a job at top international levels. That a CEO with responsibility for 10000 people makes 10 times more than a person on the floor is simply not feasible.
Now, I do not think that I am in a situation where I can change the socialistic mind set that has smitten my fellow Swedes for so long. I also deem myself incapable of quickly and dramatically changing Swedish tax pressure. The third point, however, is something that I feel passion for. I, for myself, know that the CEO of Ericsson has a job that is, when done well, worth 10 times more than the person on the floor (when his or her job is done well).
The first thing I think we must come to accept is that CEOs are differently able at their jobs. Simply put, a CEO matters. If a CEO does his or her job particularly well, a business might blossom in good times, or suffer relatively little in poor times. If a CEO does his or her job poorly, a business might still do well in good times but perhaps collapse in poor times. I argue that this is true for almost all companies in almost all open and free markets.
I do not think that the difficulties with accepting high CEO remuneration is based on ignorance around the fact that CEOs matter. It must be something else.
Maybe it is a non understanding around what a CEO actually does? Do they sit in their corner offices, smoking cigars, counting money? Do they laugh, whiskey in hand, and decide who to fire that day?
Of course not. Your average CEO has the immense pressure of qualified decision making, policy creating & enforcing, and corporate image upholding on their shoulders. This is no small task. And I think that the average Swede understands this as well.
So what might the problem be? I think it deals with the fact that there is gross misunderstanding around the skills needed to perform these tasks. But think about it this way: compare your average CEO with your average tennis player. Clearly, the top paid are the top historic performers, and with each individual great performance comes great reward. Those who get to this great reward are only extremely rarely there by luck. Most are there because they have worked like madmen for a large portion of their life. They have fought to get into the best schools, fought to graduate with the best degrees, fought to get the best internships, fought to do their best to build a career, all while sacrificing many other parts of their life the rest of us take for granted.
So, when a tennis player who has clearly sacrificed his or her whole life to stand as the winner of the US Open, does he or she deserve a reward? Does he or she deserve a bigger reward than the guy or girl who strung their racket, or massaged their backs between sets? Is it “fair” that the winner gets a bigger reward than the person who placed last? And, more to the point, should the US Open reward size depend on performance in the next tournament? To me, these questions have but one answer. I will not force them upon you.
But this boils down to the question at hand. Today, we have companies in Sweden who are performing poorly. During 2009 their market cap has slid dramatically, along with sales and overall performance. People are being let go. No issue here, really. But at the same time, some companies are paying out bonuses to the top management. Big by Swedish standards, a joke by international standards. (By the way, there is no form of payment that is as heavily taxed as this type of bonus. The hungry tax monster will lose lots of money if they are removed.) Many of these bonuses are based on great overall years in 2008. Should they be paid? Of course they should. They are completely separated from layoffs in 2009.
What would happen with the US Open if the rewards were removed? Well, none of the top players would play the US Open, because there is more reward to be had elsewhere.
What would happen if every job paid exactly the same salary? Well, there would be no incentive to sacrifice body and soul to make it to the top, so no-one would. We would become dumber and less educated with each generation.
What would happen if Sweden somehow (people are actually trying) removed the opportunity to pay top management bonuses? Top talent would move, and Swedish companies would suffer. With suffering Swedish companies, Sweden would suffer.
And we simply do not want that. Right?
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