Leadership Trust: A Look at Pay Disparities

How does executive pay create or break trust and engagement in staff?

Most of us expect our bosses to be paid more than we are. We recognize that leaders work long and hard, are intelligent and experienced, and shoulder responsibilities and risks most of us wouldn’t want.

But has the economic and lifestyle gap grown absurdly large? Between 2002 and 2007, the bottom 99% of American incomes grew only 1.3% a year, compared to a 10% bump in compensation for the top 1%.

(Image: Wikipedia via Wall Street Journal/Mercer, Hay Group 2010)

Let’s look at a few examples of CEOs’ annual compensation:

  • In 2008, Oracle’s Larry Ellison received nearly $193 million
  • Countrywide Financial’s Anthony Mozilo: $102.84 million
  • Aflac’s Daniel Amos: $75 million
  • Safeway’s Steven Burd: $67 million

The median pay for top executives at 200 big companies in 2010 was $10.8 million, a 23% jump from 2009.

These examples contribute to our dislike and distrust of those at the helm. These leaders seem to grow excessively rich as the average American struggles to make ends meet. Pay disparities can throw a massive wrench into the trust equation.

In 1990, the average American worker earned $27,000. Adjusted for inflation, this figure remains constant two decades later. But CEO compensation in the United States has increased 100 to 400 percent, and surveys show that 90 percent of institutional investors believe most executives are overpaid.

It doesn’t take a degree in psychology to predict that envy leads to divisiveness. Such pay disparities between top leaders and their employees undermine workers’ security and sense of well-being. To make matters worse, the constant threat of downsizing and outsourcing magnifies people’s fears.

This explains why employees struggle to see their leaders as invested in a shared outcome. But leaders who recognize trust-gap factors can prepare to deal with these issues by establishing an emotionally solvent, personal connection with their people.

What do you think? What do you and your colleagues say about trust in today’s leaders? Can leaders learn to be more trustworthy, say for example with executive coaching? I’d love to hear from you.

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