It is common for managers to earn higher salaries than their subordinates. Managers are often responsible for higher levels of productivity and are held to higher targets than their subordinates. In turn, they are also expected to do more work to satisfy their superiors. Despite the benefits of high management pay, this arrangement is not sustainable. Ultimately, the cost of management becomes a problem for any business.
According to Peter Drucker, CEO compensation should not exceed twenty-to-twenty times the average wage of workers. Any higher than this leads to low worker loyalty and poor motivation. However, the pay gap between top executives and their subordinates is less than twenty-five times the level that is appropriate for managers in 2010.
The new management philosophy introduced by PayScale is based on the Morning Star management model. It teaches that people will gravitate toward what they like, making them more motivated to work. Moreover, people will feel more fulfilled if they have the opportunity to develop and grow in the company they work for. However, there are still a lot of problems. The best way to solve them is by introducing changes in the way managers are compensated.
Pay discrepancies are common, especially in growing businesses. In order to make these compensation levels more equitable, Holt recommends analyzing the roles within a company. The “red circle” employees, for instance, may earn substantially more than their “blue circles,” even though their job titles don’t reflect their true responsibilities. These workers may have transitioned roles or aren’t in the same role as their former counterparts. If so, these employees need to be reclassified or receive a pay increase.
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