The Risk Takers

« Older   Newer »
  Share  
view post Posted on 22/4/2012, 22:06
Avatar

Member

Group:
Administrator
Posts:
756

Status:


We are still living in a world where there are investors and employees. To start up any business, you need some initial fund or collateral to get going. Not everyone has that lying about. So we rely on investors to put their money into good new businesses.

These businesses need employees to do the work and make the products. Sometimes, the investor may also be involved in that. Sometimes, he will sit back and hope for his investment to return, while all operations are coordinated by managers.

Although it seems every person in this business adventure has a crucial role to play, it is striking that the higher in the managerial hierarchy you get, the salaries are exponentially inflated. And the person probably earning the most in comparison to the hours worked is going to be that investor, who is also usually the owner. That seems to be universally accepted. I have not yet seen a business that pays its owners and managers less than its workers.

When asking why that correlation is justified, the usual answer is that they get paid more because they risk more. They are the risk takers, and they have the largest share of accountability - with the investor being the ultimate risk taker. That is just an amazing argument.

The risk taker hypothesis proposes that investors earn a lot more because they stand to lose a lot more. Obviously, the only unit of comparison we work with here is money. The workers do not put in any capital, so they can't lose any. The investor has to build an entire factory or whatever production units are necessary for this business to work, and also hire people and pay them for the first few months or years, while returns will be low. If it fails, he will have lost all his money, and that is indeed a lot.

However, if the endeavour fails, the workers will lose their jobs. Since they are no big investors, they will not have saved up so much that they are safe for long, nor do they have many assets they could sell if their savings are running out. It seems they are also running a risk - and when they pull a short straw, they may end up in a situation of poverty and/or starvation. What's more is that they usually can't control anything about this, because all decisions that have to do with the business' health (and therefore the worker's job survival) are taken by the owner and/or managers.

In a casino, the best game to play is blackjack. All other games either have equal chances of winning and losing, or worse, i.e. that you have a slightly larger chance of losing money than winning it. What makes black jack different is that you have a few ways you can tactically influence the game: by taking insurance, doubling up, or splitting. The bank on the other hand can only draw cards until it reaches 16/17 or more. The ability to control your play gives black jack a slight advantage towards the player.

Those who have deciding power in a company, can influence the outcome in their favour. Even if that outcome turns out to be that the business will fail. In that case they can make strategies: to change the operation, to get out ahead, or to sell the thing. The workers do not have these options, and they are usually informed much later about this. Their only option in the end is to be fired and hope they will be able to find another job to sustain them. That is a much nastier outcome than losing several millions of euros (dollars/pounds) and having to sell your luxury car and your villa for cheaper models to get through the winter. Sure, it's pretty embarrassing, but that's not as abject as real poverty and hunger - and besides, it was in your hands all the time, wasn't it? Maybe letting business fail, and thereby failing all your workers, is a good reason for a bit of embarrassment. Anyhoo, assuming we measure risk by the nastiness of the outcome, it seems the workers bear the heavier risk.

In all the above, I have been siding the managers with the owners, on the basis that they are in a position to influence the outcome of the business, like the owners, and unlike the workers. But what have they actually got to lose here, which would justify a much bigger income? They do not always bring capital to the business, like the investor/owner. So here, the term risk doesn't apply as smoothly. The argument switches a little bit and now it calls the managers "accountable", instead of risk takers. But for what are they accountable then? One could read in it that they are accountable for the performance of all their subordinates, but that is quite laughable. Their subordinates are also accountable for what they do individually. Make a bunch of blunders, and you will see that the manager will not feel any responsibility for your performance. The only thing managers are accountable for is their own decisions. If they let your work knowing you consistently jeopardize the business, then their decision to do nothing about it is what they are accountable for; not your extreme clumsiness. So that is not it what makes their job so much "riskier": they have their own decisions under their control. Supposedly they are also much smarter and more educated than workers, so they should be well equipped for managing their own decisions. That is not where the extra risk comes from.

So maybe then, if the business fails, they will get fired a lot harder than ordinary workers? Like danger pay for soldiers. There is more on the line for managers? Maybe they get thrown in jail if it turns out they made the wrong calls? I wish.

No, when they make the wrong decisions and when/if they are held accountable for it, the worst that happens is that they lose their extravagant salary. Well, that is not much different from anybody else on the job who messes up grandiose. Except of course, most people lose much smaller salaries to their errors. So the managers should get higher salaries because they have larger salaries to lose when they mess up?? Again, this seems to lead nowhere!

There is a last possible explanation of how managers could be "risk takers" which would justify their high salaries for the same (or even less) hours of work from normal workers, which I mentioned before: they need more education. Education costs money and time. It would be fair to get paid a little extra after this investment. Sure, a little. If education is expensive, maybe a bit more than that. That could be fair (assuming that education has to be expensive for the student, which is not true). But besides the money question, there seems to be a premise here that education is a hardship for which you must be extra rewarded afterwards. As if one would sacrifice years of one's life to educating oneself. 2 things: 1. Those who do not choose to go through higher education usually (have to) work, which can just as easily be said to be a sacrifice and hardship, for which they do not get extra rewarded. 2. Going through education can just as easily be seen as enrichment of the self, and I do believe it is. Maybe the people who first went to college before starting work should be paid less, because they are richer in their mind? That would be fair... [It's sarcastic. I'm not saying people who choose work over education are dumber or less enlightened. I see only a very slight correlation between the two and more than plenty of deviation both ways. Nor do I believe one should have either a higher or lower salary based on how many scholarly books they've read.]

"Risk takers" and "accountability guys" get paid more, for no good reason. And I spy with my little eye, a big fat lie: "Risk Takers".
 
Top
FionaK
view post Posted on 11/6/2012, 18:06




https://www.youtube.com/watch?v=bBx2Y5HhplI

Apparently this talk was not sent out be TED in the usual way

It attacks the notion of the rich as Job Creators, which is relevant to this thread, too, I believe

TED itself says that they did not choose this talk because it is partisan. The speaker says that the idea that the rich are job creators is central to the american republican party and that the democratic party do not challenge it enough. Since both of those statements seem to be true it is a little strange to criticise them as partisan. The speaker does not necessarily make out that case in the body of the talk: he does not address it much at all, beyond the first few seconds. Nevertheless if a statement is true it should not be a fault to make it, even if it does suggest that one party rather than another had got things wrong. They can't both be right (well actually to the extent that they share assumptions they can: and they can both be wrong).

The second strand of their decision was that the talk is not very good: you may agree or disagree but they have tied that conclusion so closely to the first that it is moot
 
Top
2 replies since 22/4/2012, 22:06   148 views
  Share