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Why bosses get paid more

by | 22nd, August 2012

WHY bosses are paid more. Or at least, why good bosses should get paid more.  Interesting research from the real world:

Three findings stand out. First, the choice of boss matters. There is substantial variation in boss quality as measured by the effect on worker productivity. Replacing a boss who is in the lower 10% of boss quality with one who is in the upper 10% of boss quality increases a team’s total output by about the same amount as would adding one worker to a nine member team. Using a normalization, this implies that the average boss is about 1.75 times as productive as the average worker. Second, boss’s primary activity is teaching skills that persist. Third, efficient assignment allocates the better bosses to the better workers because good bosses increase the productivity of high quality workers by more than that of low quality workers.

This is about the quality of team supervisors, not about the quality of the boss up there in the exalted heights of the CEO’s office. But so far we’ve justified a near 2x wage difference between the worker on the shop floor and the immediate supervisor of that worker.

Which leaves us still trying to explain the 100x pay difference between the worker and the CEO…..all we need to do now is have 9 layers of management. For each layer up is of course the team leader of a team of managers. So, the managers of the managers of the shopfloor workers should get 4x the pay, their managers 8 x, theirs 16 and so on. Within 9 layers of management we can thus justify 128 times the pay.

All of which is lovely except of course management doctrine currently insists that there should be no more than 7 layers of management, preferably 5, in any organisation.

 



Posted: 22nd, August 2012 | In: Money Comments (3) | Follow the Comments on our RSS feed: RSS 2.0 | TrackBack | Permalink