Value Creation..
The foundation of economics lies on 4 pillars - Land, Labor, Capital and Enterprise. Land being nation, labor being workers exchanging their work for wages, capital being money from investors and Enterprise being a combination of all factors to create a business. In the farming age, wages were directly correlated to the number of hours of work. Industrial age followed similar norms with an additional measure to quantify volume of goods produced.
Income gap
In the industrial era, the pay ratio between a rank-and-file worker and CEO was 1:42 (1980) while it is now at 1:1800 or more. In the current knowledge era, which is based more on services & infocomm, work is no longer measured by number of hours of work or goods produced per day. But wages are based on a complex combination of metrics such as qualification, experience, network & expertise.
The income gap between a worker (Senior Engineer) and his management (VP) has grown widely and now stands at 5-20x. At the "C" class levels, the income gap with the worker is more pronounced at 1600x ($48million to $30k) or higher multiples depending on the type of the industry and whether the business exploits low cost labor in other parts of the world to increase its profits manifold. The CEO-to-worker ratio could be as high as 24000x in case of outsourced/offshore worker ($48million vs $2k p.a).
Value (vs) Pay
The wages of the top paid executives makes one wonder whether the value they create is commensurate and comparable to workers in their own organization. If you take a sample of 3 profiles such as an engineer (worker), a Vice President (mid-level manager) and the CEO (senior executive) and ask each one of these people to write down in 3 simple bullet points on what they have delivered in the last one month, you would see that only the worker's claim of his deliverable would be measurable and independently verifiable by a third party.
Unfortunately, in the knowledge era, we have created this system where people who create the most value are paid the least (eg.skilled workers) while those who are paid the most create the most damage, let alone create any value (eg. executives of Enron, Lehman, JPMorgan, Goldman Sachs, Satyam, Union Carbide, NSEL, KPMG, Monsanto, Ranbaxy - the long list goes on..)
In search of true value..
In summary, the production economy (1970-1990) created "skills, technology & innovation" as its true value which led to the birth of knowledge economy (1990-2010), which created a true value of "IT enabling all systems known to humans" - this in turn has led to the birth of Consumer Economy which is all about social networking on 5 different gadgets and doing business in the cloud (popularly coined as "SMAC" platform in the IT industry - Social, Mobility, Analytics & Cloud). It would be interesting to see what true value the current Consumer Economy would create!!
Income gap
In the industrial era, the pay ratio between a rank-and-file worker and CEO was 1:42 (1980) while it is now at 1:1800 or more. In the current knowledge era, which is based more on services & infocomm, work is no longer measured by number of hours of work or goods produced per day. But wages are based on a complex combination of metrics such as qualification, experience, network & expertise.
The income gap between a worker (Senior Engineer) and his management (VP) has grown widely and now stands at 5-20x. At the "C" class levels, the income gap with the worker is more pronounced at 1600x ($48million to $30k) or higher multiples depending on the type of the industry and whether the business exploits low cost labor in other parts of the world to increase its profits manifold. The CEO-to-worker ratio could be as high as 24000x in case of outsourced/offshore worker ($48million vs $2k p.a).
Value (vs) Pay
The wages of the top paid executives makes one wonder whether the value they create is commensurate and comparable to workers in their own organization. If you take a sample of 3 profiles such as an engineer (worker), a Vice President (mid-level manager) and the CEO (senior executive) and ask each one of these people to write down in 3 simple bullet points on what they have delivered in the last one month, you would see that only the worker's claim of his deliverable would be measurable and independently verifiable by a third party.
Unfortunately, in the knowledge era, we have created this system where people who create the most value are paid the least (eg.skilled workers) while those who are paid the most create the most damage, let alone create any value (eg. executives of Enron, Lehman, JPMorgan, Goldman Sachs, Satyam, Union Carbide, NSEL, KPMG, Monsanto, Ranbaxy - the long list goes on..)
In search of true value..
In summary, the production economy (1970-1990) created "skills, technology & innovation" as its true value which led to the birth of knowledge economy (1990-2010), which created a true value of "IT enabling all systems known to humans" - this in turn has led to the birth of Consumer Economy which is all about social networking on 5 different gadgets and doing business in the cloud (popularly coined as "SMAC" platform in the IT industry - Social, Mobility, Analytics & Cloud). It would be interesting to see what true value the current Consumer Economy would create!!
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