Roland Dürre
Wednesday November 11th, 2009

“High Income I” – or “Many Employees = Much Money!”

Currently, people get more and more thoughtful and start asking strange questions, such as:

Is it justifiable that the director of a company earns a hundred times as much as his employees?

BMW wants a link between the director’s wages and the general income development. And at Siemens, the managing director wants to let the stake holders vote on how high his income should be.

In the 1960-ies, the APO got excited about Heinrich Nordhoff, who was VW managing director for several decades, earning twenty times as much as the common VW employee. Today, you read of yearly managerial incomes in the double-digit millions, which means occasionally about the factor 100 or 200 or even more.

Politicians, too, demand that super incomes should be limited, either by law or voluntarily. I really wonder how that is supposed to work?

But let us talk business: high managerial income is only possible in very huge firms. The only way for a director to get 10 million per year is if, for example, 100,000 employees earn an extra 100 Euros each. That does not sound like too much. Now take a middle-size enterprise with, let us say, 100 employees, and you get 10,000 Euros extra per year for the boss. 100 million Euros, however, is a sum that is no longer mentally conceivable for normal people when thinking in terms of money.

Do we need huge enterprises at all? Do mergers in general only bring disadvantages for the customers and (allegedly) advantages for the enterprise? Huge concerns have to meet operational goals. It goes without saying that they do not use their powerful position on the market for anything other than their own interests. Forget about the interests of the customers or some social system.

No huge company has only its own strength to thank for its size. The central factor for expansion is always the (speculative) capital market. As a general rule, huge concerns have always developed inorganically (by buying other enterprises with outside capital) or by collecting small enterprises (such as in the USA in 1929 with free capital before the world-wide economic crisis).

The necessity of huge concerns is probably only one of the modern lies we keep telling ourselves. Small enterprises work a lot better and more efficient. Gigantism is not a good concept. I believe in small, regional and de-centralized systems co-operating as partners and creating great things together.

RMD
(Translated by EG)

4 Kommentare zu ““High Income I” – or “Many Employees = Much Money!””

  1. Chris Wood (Wednesday November 11th, 2009)

    Roland writes that small firms work much better and more efficiently. But he gives no evidence to support this view! My impression is the opposite. I have read that with the same qualifications, people earn better at larger firms. From a customer point of view, I have been rather happy with VW cars, and I read that Toyota owners are among the most satisfied. Jaguars used to be unreliable, but since they were taken over by Ford, their customers have become much happier.
    Roland contrasts the “benefit of a firm” with the benefit of its customers (and perhaps also of its employees). But the “benefit of a firm” must be divided into the benefit of its owners and of its managers. In general, it is good for the owners to profit. Lots of little people depend on this, via life insurances, etc. The owners tend to profit when the customers are happy. (Of course there are exceptions, for instance when a monopoly is formed). Earlier, it was also generally good for managers to profit from their work. The owners organised better pay for better managers. The problem now, is that the whole system has become so complex that often nobody knows whether management is good until too late. The managers themselves can judge this best and soonest. That Siemens shareholders decide the earnings of the management is really nothing new. They could always do so. I hope the mechanism will be improved. Firms’ shareholders have tended to delegate too much power in this, so that the managers could legally raid the till when things were going badly.

  2. rd (Wednesday November 11th, 2009)

    @ Chris: Zweifelfrei gibt es eine Korrelation zwischen Größe und Komplexheit. RMD

  3. Enno (Wednesday November 11th, 2009)

    Moin moin,

    an einem Morgen konnte ich beobachten, wie an der Uni in kurzem Abstand drei (oder vier?) Paket- und Kurierdienste nacheinander ankamen. Da war die Post als riesiger Monopolist vermutlich um einiges effizienter als mehrere kleine Unternehmen.

    Insgesamt gilt, dass die effiziente Größe von der Produktionstechnologie abhängt. Und die variiert abhängig von der Aufgabe, die das Unternehmen erfüllen will.

    Große, monopolistische Unternehmen zu zerschlagen ist also nachteilig, wenn der Unternehmenszweck diese Größe bedingt, also ein natürliches Monopol vorliegt. Verstaatlichung, Preisvorgaben und staatliche Versteigerung der Monopolposition sind dann das besser Mittel.
    Regionale Monopole sind ähnlich ärgerlich für die Konsumenten wie überregionale Monopole.

    @Chris Wood:
    You can divide the “benefit of the firm” into as many parts as stakeholder-groups participate in the the wealth the firm creates. Consumers, management, shareholders and other groups contribute to the creation of wealth, and it depends on their power how much of the wealth they can earn. VW is probably one of the best german examples of a company where well organised worker-unions take a huge amount of the value while shareholders tend to get small interest rates.
    The division of the “benefit of the firm” into only twi parts – management and owners – is the view of many corporate-governance-codices, but due to their ignorance towards other stakeholders they might reproduce the problems they are ment to solve.

  4. rd (Wednesday November 11th, 2009)

    Hi Enno! Die Post ist für mich kein Unternehmen, sondern ein staatlicher Infrastrukturdienst. Und da gehöre ich zu den altmodischen Menschen, die glauben, dass die Infrastrukturdienste zentral und staatlich geführt werden sollten, allerdings mit der Einschränkung, dass sie sehr gut “gemanaged” werden müssen und die Mitarbeiter keinen “Beamten-Status” haben (obwohl Beamte auch sehr motiviert sein können).

    Noch eine Vision: Wenn man implizieren kann, dass der Staat ein “fairer” Arbeitgeber ist (Regelung durch Ombudsmann oder ähnlich), könnte man z.B. für solche Infrastruktur-Unternehmen den Kündigungsschutz lockern. Wahrscheinlich würden dann solche Staatsbetriebe große Wettbewerbsvorteile haben.

    Man könnte auch davon ausgehen, dass 1 gut “gemanagter” Mobilfunkdienst besser und billiger wäre, bräuchte er doch nicht soviel Geld für Werbung ausgeben als die konkurrierenden Dienste.

    Das als ganz spontane Ergänzung.

    RMD

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