I contend in this essay that what we are seen in the current debacle of unseemly Executive Bonuses e.g. AIG and also the whole realm of Executive Compensation that we have witnessed during the last twenty years or so, is a result of a severe case of Contextual Poverty in the design, review and evaluation of these programs. It is my contention, that in the “Pay Ethos” we quite often live in a state of contextual poverty.
This contextual poverty state has been created and maintained by Compensation consultants, Internal Compensation Specialists, Boards of Directors, the executives themselves and their Human Resource executives.
So what do I mean by contextual poverty.
—The circumstances that form the setting for an event, statement, or idea, and in terms of which it can be fully understood. So one is out of context, if one tries to understand or explain any phenomena without the surrounding words or circumstances that have not been fully understood. Being in this state of an absence of context is being in a state of contextual poverty. (Wikipedia)
—Getting out of this poverty state requires study, analysis and a deep Understanding of all the dimensions of the context
The Field of Pay is surrounded by stated, researched and validated theories that have been passed onto us from the days of the advent of the Industrial Age. No less illuminators than Karl Marx, David Ricardo, Adam Smith all the way down to Edward Lawler have all theorized various pay related theories. Thus this field requires deep study and understanding before one can call themselves "experts" in the field. This is not the case.
Furthermore, the field of Pay is a multi-disciplinary field engulfing sociology, psychology, economics, the business disciplines of - finance, accounting, legal, tax and social anthropology (I may have missed some). Thus an understanding of this field requires a study and understanding of these contexts. How many people developing, advising and approving programs in this field have this multi-disciplinary context under their belts? Not many I would say.
Finally, the pay context covers an understanding of the macro issues of social cost, governance, comparable worth, gender equity that affect our Pay Ethos.
Most of what we see is "suit off the rack" "copy the others" programs designed and implemented in a contextual poverty environment. No wonder we have such anger, emotions and bewilderment attached to this subject, especially in democratic societies. The US Congress and also the President have to deal with programs where the context is not well understood.
This is the conclusion I have reached with the advantage of hindsight, after having spent most of my adult life in this field. Sad isn't it?
Therefore, it is time to ponder this subject in more depth.
