Freezing executive pay opens up money for workers

An article in The Guardian earlier this week caught my eye. CareCentrix CEO John Driscoll penned an editorial “We froze the salaries of 20 executives – and it improved the lives of 500 employees.” Driscoll took the reins of this struggling healthcare company, whose financial troubles included a significant amount of staff turnover.

Driscoll worked with his leadership team and Human Resources to make a number of changes, but he felt that was insufficient to right the ship. So, he made a decision to find more money to keep workers who were struggling and working multiple jobs.

As Driscoll wrote in The Guardian, “What that meant for our company was that if we just froze the wages of our most senior team – less than 20 executives – we could radically increase the wages and improve the lives of nearly 500 of our teammates.

The conversation with our executives was straightforward. We were in the midst of a turnaround. We were demanding much from every corner of the company. Small financial sacrifices from those at the top could be life changing for those at the bottom of our wage scale. We needed to do it to build a real sense of Team CareCentrix. They agreed. With joy, we announced in January 2015 that our minimum base pay for employees would go up to $34,000, or the equivalent of $15 per hour.

Raising wages in the midst of a business turnaround was not easy. We needed our executive team to buy into a vision of business success where every employee had a fair shot at success. It worked.

Our business has tripled over the past five years. Our minimum wage is now approaching $16.50 per hour and last year we broadened profit sharing to all levels of the company.”

This caught my attention as the US far exceeds other nations in the ratio of CEO pay to average worker pay and has for some time. Having been a former Compensation & Benefits manager, manager of people and consultant, executive pay is much more upwardly elastic than that of average workers. Average worker pay has a lid placed on it through the budget process – which often overemphasizes past, current or expected troubles. Also, downsizing at the time of annual raises facilitates the lowering trend on average pay increases as folks who would have received little or no increase are let go – so folks that remain receive suppressed increases to make the percent increase in the budget work.

What I like about this CareCentrix example is the thought process and solicited buy-in from rhe executives. Yet, it need not take a burning platform to make needed change. There is a productivity cost to turnover that impacts the bottom line due to constant churning, replacement, recruitment and training of staff. Keeping more people longer is accretive to profits.

Some larger national companies have recognized this and raised their floor pay levels – Bank of America, Wells Fargo, and Walmart are in this group. So, thoughtful discussions are needed, in my view, around these issues irrespective of or along with governmental imposition on increased minimum wages.

9 thoughts on “Freezing executive pay opens up money for workers

  1. Estimates of the income of the typical corporate CEO range from 400 to 700 times that of the average employee. Our minimum wage, as you suggest, is a bit of a joke.

    • Hugh, plus the range of ratios you cite dwarf that of other countries. US CEOs are not any more productive than non-US CEOs. In my work as a consultant, much of CEO pay is due to market conditions. Good CEOs make a didfference, but not all CEOs are good. Keith

  2. I’m glad you brought this article to our attention. I hope this will become a more common practice with companies that value looking out for the people who make their profits real. Nicely done! -Susan

    • Thanks Susan. Hugh cites a statistic worth noting. What historical data reveals, the executives, with heavy doses of equity income, tend to make more money when everyone does well. Keith

  3. Note to Readers: I want to offer an example on how letting low-performers go at the time of the annual review process impacts those who remain. If a company has a 3% pay increase budget with ten employees, they might give the worst performers a 0% – 1% increases allowing increases of 5% – 6% for the better performers. If the company let’s the bottom two performers go, they obligate giving the next tiers of performers smaller raises than they would have received before. To make the math work, those who would have gotten 5% or 6% will now get 4% or 5%.

    What frustrates the managers is they do not get credit for the reduced salary budget when people are let go. Hence, they have to sand away at increases for average and better performers. These kinds of actions suppress wage growth and causes turnover when people have choices.

    Treating people fairly is essential to that elusive employee engagement and retention. Employees have a long memory as well.

  4. That is a company who understands that their greatest asset is their employees. In the U.S., the minimum wage has not been raised in ten years, since 2009, and at that time, it had not been raised for ten years also. Never mind that CPI has raised most every year. I hope we see more companies taking this path.

    • Jill, so true. Companies that view employees as assets are way ahead of those who view them as liabilities. As for the minimum wage, more than 60% of the states have left the Federal government behind, which is a good metaphor. Keith

      • As a CPA, I always cautioned plant foremen and higher-ups that the people were the business … they can make or break you, so you better treat them as your biggest, most important asset. Good people are worth more than the fanciest piece of machinery. It is good to see the states taking the initiative, and even some companies, but it is still disappointing that the federal government has so little concern for the people of this nation.

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