Follow the Money (Part 3)

Do salaries create conflict, too?

Source: Gratisography

Salaries have also been around a while. Our word “salary” comes from a Latin word for salt. Roman soldiers were given “salt money” as pay; we still may say that workers are “worth their salt,” meaning that they earn their pay. Salaries are set monthly, or annually.

Salaries became more common during the industrial revolution. They were used to pay administrators and managers whose work was difficult to measure, but who weren’t partners or partial owners of the firm. When Japan industrialized in the early 20th century, a new Japanese word—salaryman—was coined to describe these office workers. As our service economy has grown, the share of salaried employees has grown as well. Today, in the US, about 40% of all workers earn a salary.

Salaried employees suffer from a principal-agent problem. Shareholders want the most work possible out of the firm’s employees. Salaried employees may just want to “get by,” without taking a personal interest in the performance of the company. To get around this, salaries are now often considered part of a total compensation system, which may also include bonuses, incentives, benefits, and other perks. These are designed to help employers link rewards to an employee’s measured performance.

Source: Wikipedia

But the devil is in the details. Poorly structured incentive schemes create more problems than they solve. They can put employees at odds with each other, with their supervisors, and with their customers. A bad incentive compensation system is often worse than no system at all—leading to poor corporate performance and high employee turnover.

The difference between employee and employer can be seen in how they approach payday. For one, it’s a source of hope and expectation; for the other, it’s a matter of anxiety and dread. If we want workers to “earn their salt,” they need to know that what they do matters—for their customers, for their employers, and especially for themselves.

Douglas R. Tengdin, CFA

Chief Investment Officer

By | 2017-07-17T12:21:54+00:00 July 7th, 2016|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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