I have a love-hate relationship with Elliot Jaques -- well not him, really (an older fellow when he died in 2003, and reputed to be fairly crotchety) -- more like some of his ideas. The problem is, some of his ideas tend to stick in your head, like them or not, like red wine stains on a white tablecloth.
One of his ideas that I kind of liked, for it's sheer simplicity and apparent rationality, is his notion of fair pay. And it was Franklin D Raines, recently dismissed from Fannie Mae, who received a compensation package worth approximately $140 Million for his six years of service (as reported by BusinessWeek, January 10), that got me thinking about fair pay.
By way of background, Jacques asserted that hierarchies are naturally constituted of various layers (strata) of work. The chief determinant of these strata are the time span of the longest task. The largest corporations that exist today, such as General Electric, require seven layers. At the lowest level, the time span of the longest task might be as short as one day ("file all invoices before the end of the day"). At Stratum VII, the longest task would be something in the range of 20-50 years ("ensure a stable financial environment for home-buying over a 20 year period").
Okay, here's where pay comes in. Jacques said that pay should feel fair, and that this fair feeling lines up on a proportional scale. He used the one to two year layer (Stratum III in his lingo) as his benchmark level.
However, I've not found a lot of executives who say "just give me sixteen times what our front line managers are getting, and that'll be fine". The real benchmarking is going on at the top, where all boats are rising.
I built a little spreadsheet model so I could see how Mr. Raines' pay would look in Jaques' model. Here's one scenario, using just his average compensation during just the six years he was working there, and not including any severance or continuing lifetime salary (which by the way is $1.37 M annually for the rest of his life):
According to my calculations, receptionists in that organization should be making something on the order of $56 K annually. Of course, they might also wish to have that salary available throughout retirement, whether they were fired or not.
This can be a fun parlor game, so I've attached the actual spreadsheet for those of you who'd like to play this at home. Download felt_fair_pay_calculator.xls Be forwarned, however -- as my learned friend Bill, a long-time HR guy, told me once: "if you really want to drive yourself crazy, work in compensation".