Fairness Above All Else?
March 2008
At the beginning of the year, the Canadian Center for Policy Alternatives, a Toronto-based research institute, published the results of a study on Canadian incomes. The average salary of 100 of the best paid publicly-traded corporate leaders was established at 8.5 million dollars. The median salary for the average Canadian worker is $38,998 per year, which in terms of a top CEO means that he will work 9 hours and 33 minutes to make as much as the typical Canadian in one year. Holy moly!

Okay, let’s admit that it is in fact normal for a CEO to make more money than his employees. A corporate director carries a heavier load of responsibilities and his contribution to the creation of wealth is greater than that of his workers. But how much greater… 5, 10, 20 times greater? Hard to assess. In 1998, according to Hugh MacKenzie of the Canadian Center for Policy Alternatives, the elite was earning an overall of 104 times more than the average Canadian. This was huge, nowadays, the gap is even bigger at 218 times.

Is this still normal? Does a CEO really contribute 218 times more to the creation of wealth than its average worker? I’m not so sure.

A few years ago, I was surprised to discover a case in question printed in the pages of the Coopérateur agricole: Mondragon, located in the Spanish Basque country. It is a cooperative society comprised of more than one hundred large worker cooperatives numbering some 83,000 salaried workers, half of whom are members. It shows annual sales of 13 billion Euros. A seeming
success story! However, since its inception some fifty years ago, Mondragon has been trying to limit its salary gaps to ensure a fair distribution of wealth among its members and thus maintain a high level of employee mobilisation. In the beginning, the gap between the lowest and the highest salaries was not supposed to exceed a ratio of 1 to 3. Throughout the years, the ratio was adjusted to maintain and attract senior level executives. Today, the ratio is about 1 to 8. It is believed that at Mondragon, workers are paid some 15% more than their market equivalents while management is earning roughly 30% less than their colleagues.

Mondragon representatives admit that fairness and balance within the salary structure is a delicate and difficult feat. The risks of going astray, one way or the other, are very real. On the one hand, tolerating a wide gap allows internal dissention to set in and compromises motivation in the workplace. On the other hand, imposing a gap that is too restrictive tempts managers and executives to seek higher wages elsewhere. Mondragon is far from being a closed community: it has some 65 production sites in 18 countries. It is thoroughly involved in liberalizing the workplace. But nothing is simple. Fairness and salary equity, even at Mondragon, is still a challenge and one wonders how long it can maintain its noble principles of equity, especially in installations located outside Spain.

From my perspective, imposing salary ratios seems rather curious, almost utopian, especially when operating in different markets. If the objective is to attract the best managers, the context should not be ignored nor should the various market trends. Finding the right balance is what’s important. However, before we fall into the excesses condemned by the Canadian Center for Policy Alternatives, and rightly so, I believe there is still a long way to go to establish a salary framework that is fair to everyone. Once again, it’s all about common sense!

 

Colette Lebel, agr.
Director of Cooperative Affairs
La Coop fédérée
Email: colette.lebel@lacoop.coop
Fax: (514) 858-2025
 



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