corphierarchy

Let’s take a simplified scenario of the mechanics underlying the remuneration relationship between a corporation and an employee in the knowledge economy.

The corporation pays a white collar employee a certain salary and benefits. The corporation in turn charges its clients for the work performed by said employee a much higher rate, double or more (!) what the equivalent cost of the employee’s salary and benefits. This difference pools into a so-called “overhead” budget. The overhead budget covers things such as facilities’ rent, but by far, the largest chunk goes to indirect labor, i.e. executives. They in turn are supposed to make life better for everyone: customers – innovative products and services -, employees – job security -, shareholders – profit.

So even though a knowledge worker’s yearly time is worth say $200.000 on the market, a corporation retains half of the value before giving the employee $100.000 in salary and equivalent benefits. If corporations were democratic institutions, the $100.000 would be regarded as a “tax”. Given that a particularly talented employee could make $200.000 as an unaffiliated freelancer, the question arises as to why he or she should pay half of his or her market value potential as tax to the overhead pool of the corporation that employs him or her. Said differently, what services does the corporation provide the employee in exchange for taking away more than half of the employee’s fair market value? The classical argument is that the corporation provides “job security”. That is all great, and it can be seen as the employee outsourcing the job of managing an unpredictable future to others for a tax. But if that’s the case, shouldn’t executives be accountable to the employee when they fail to shepherd the business in such a way as to achieve the job security objective while of course maintaining a profitable bottom line? Seen from the lens of a democracy, don’t we have a case of “taxation without representation”? The employee is being taxed significantly yet he or she can’t vote incompetent management out of their respective positions. How much longer will white collar talent in the knowledge economy humbly abide by this outdated and one-sided view of organized work?

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