Fairness isn’t a factor in wages
Opinion: Bruce Cotterill says value-generation is being overlooked in the calls for higher pay.
One thing you can bet on. The arrival of a Labour Government will inevitably bring cries for higher wages. And so it has been in New Zealand during the last nine months.
As a result we have seen a plan to rapidly increase the minimum wage and the newly empowered union movement flex their muscles in the light of a more sympathetic government ear. Those muscles have guided nurses and school teachers through strike action, and no doubt other government workers, and a few from the private sector will follow and strike for greater gains.
Let me make it clear from the outset. I have a great deal of sympathy for health workers and school teachers. They are deserving and their causes are difficult, if not impossible, to argue with.
However, irrespective of whether you are working for yourself, a small business, a large corporate or the Government, one of the most basic concepts of economics is that we all get paid because of the value we bring to our paymaster.
As is often the case, we can often look to sport for highprofile parallels to our business challenges. This concept of ‘‘value’’ is also the basis behind the seemingly enormous sporting sponsorships and prize pools that are available to the world’s best tennis, golf and basketball players. In other words, if you can draw a crowd, or carry a large audience, the television companies and spectators will pay large amounts of money to your sport, to watch you ply your craft.
However, today’s debate on wages tends to overlook the importance of the value being generated. All too often, such cries revolve around a need for everyone to be treated the same, irrespective of performance. Just as better salespeople earn more money than weaker salespeople, so it should be with most other roles.
Instead, the concept of value generated is being ignored in favour of a quest for fairness, or equality or in some cases, to get a headline. And here’s the problem; most economic models don’t understand or cater for emotional factors. Those of us employing people can’t charge for our goods and services based on fairness. Our deliverables have to provide value to the purchaser.
Returning to the sporting analogy for a moment, you could argue that the All Blacks train as hard, put their bodies on the line more and play a tougher code than the basketballers in the USA’s NBA.
However, while the top ABs may make a little over $1 million per year, the fact that the top player in the NBA, LeBron James, is paid $46m per year reflects the fact that he brings greater value to his employers in terms of audience numbers.
Private schools will create demand and attract students based on their record of achievement and the quality of their outputs. As a result,, students, or their parents, are prepared to pay plenty for their services.
Medical specialists such as surgeons will find their appointment book swelling, irrespective of the fees they charge, if they enable their patients to make amazing recoveries from injury or illness.
Some call it performancebased. I say it’s about the value we bring.
It’s logical that New Zealand exporters can only get fair value for their products, and that value will be based on the value we bring to the competitive international market.
So, whilst we would all like to see New Zealand become a higher-wage economy, we won’t do so until we deliver greater value. And the biggest impact on value is our productivity.
New Zealand is a great place to live and we do pretty well in the global ‘‘lifestyle’’ surveys. But our propensity for the delivery of low-value goods (milk powder rather than medicines, logs rather than kitset houses) coupled with our rather relaxed work ethic – four weeks holiday per year and now a debate about four-day weeks – means that we are a low-productivity country.
When it comes to wages, business and government can only fund what the market is prepared to pay for. And that market is looking hard for value more and more.
Bruce Cotterill is a five-time CEO and current company chairman and director. He is the author of the new book, The Best Leaders Don’t Shout.