Commonly Used Words in the Corporate Context

After having written two essays on all the words that are currently used in many different contexts in the pay ethos, I have found that the most commonly used words in the organizational context are:

• —Base, Basic, Fixed, “Come To Work” – this describes the “fixed” part of your pay. This element is mainly provided to employees to come to work and do the work by using the required skills, knowledge and abilities.
• Incentives or bonuses – given to you for achieving time bound goals and objectives. Words such as incentive targets, objectives (bonus able objectives), measurements, ratings are all contextual terms used here in most organizations
• Allowances – not ‘benefits” are used here.  Housing allowance, transportation allowance and education allowance are common. These types of allowances are widely used in various countries
• Adders to base – are common in the US. Overtime pay, call-back pay, on-call pay are common elements and are provided for work that is done beyond normal work hours
• Risk Benefits – medical, disability and life. These benefits are provided to employees in lieu of cash to mitigated the various life risks for employees and their families
• Retirement, Savings benefits are commonly found in organizational settings to assist employees with their post-employment lives
• Equity Participation – this element in the past had been mostly provided to senior executives to motivate them to increase share-holder value. This component of pay has seen the most contextual fluctuations during my many years in this business. There has come to being many versions of these plans (non-qualified stock options, incentive stock options, restricted stock options). This topic is a much discussed topic in all realms. Accounting, tax and legal implications surround these programs. More recently issues of Executive Compensation Excesses, Insider trading, Ownership Culture, Stock Option pricing, dilution, over-hang and plethora of issues, concerns, debates, and legal mumbo jumbo has almost clouded the pay ethos with total confusion. This element has spawned specialists, legal experts, associations, interest groups and what not around this one element of the pay ethos. In my opinion, the over-riding factors that surround this element is, 1) whether these programs have any value if distributed all across the whole employee population, even to the lowest employee levels and 2) the over-riding issue in my mind, is whether the organizations that distribute stock options to wide variety of employees, hoping that this distribution of stock options will make all levels of employees as if they are owners do indeed achieve an “ownership culture” (watch for an essay on this subject on this blog)
• Perquisites – here the mind will indeed be boggled for the common person. Many Fortune 500 companies provide executives a wide variety of perks. This practice is wide spread around the world. Most common are first class travel, private jets (do not forget that the automobile executives in the US showed up to Capital Hill to beg for the tax payers money in company provided private jets – what a joke!), country club memberships etc. etc. Why may I ask are these elements provided to these senior executives? What is the rationale? Is their any direct correlation between organizational performance and the granting of these perks to executives? Now is the time to question the existence of these pay elements widely in all circles of our society. Reasonableness should a key determinant.

The concept of contextual poverty in the field of pay

I contend in this essay that what we are seeing in the current debacle of unseemly Executive Bonuses in AIG and also the whole realm of Executive Compensation that we have witnessed during the last twenty years or so, is a result of a severe case of contextual poverty in the design, review and evaluation of these programs. It is my contention, that in the “Pay Ethos” we quite often live in a state of contextual poverty.

This contextual poverty state has been created and maintained by Compensation Consultants,Internal Compensation Specialists, Boards of Directors, the executives themselves and their Human Resource executives. 

So what do I mean by contextual poverty.

—The circumstances that form the setting for an event, statement, or idea, and in terms of which it can be fully understood. So one is out of context, if one tries to understand or explain any phenomena without the surrounding words or circumstances that have not been fully understood. Being in this state of an absence of context is being in a state of contextual poverty. (Wikipedia)

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—Getting out of this poverty state requires study, analysis and a deep understanding of all the dimensions of the context

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The field of Pay is surrounded by stated, researched and validated theories that have been passed onto us from the days of the advent of the Industrial Age. No less illuminators than Karl Marx, David Ricardo, Adam Smith all the way down to Edward Lawler have all theorized various pay related theories. Thus this field requires deep study and understanding before one can call themselves “experts” in the field. This is not the case.

Furthermore, the field of Pay is a multi-disciplinary field engulfing sociology, psychology, economics, the business disciplines of  - finance, accounting, legal, tax and social anthropology ( I may have missed some). Thus an understanding of this field requires a study and understanding of these contexts. How many people developing, advising and approving programs  in this field have this multi-disciplinary context under their belts? Not many I would say. 

Finally, the pay context covers an understanding of the macro issues of social cost, governance, comparable worth, gender equity  that affect our Pay Ethos.

Most of what you see are “suit off the rack” “copy the others” programs designed and implemented in a contextual poverty environment. No wonder we have such anger, emotions and bewilderment attached to this subject, especially in democratic societies. The US Congress and also the current President having to deal with programs where the context is not well understood.

This is the conclusion I have reached with the advantage of hindsight after having spent most of my adult life in this field. Sad isn’t it?

Its time to ponder this subject in more depth.