Pay Jack the same as Jill? We don't think so.
Intro: Sports agents are ninja compensation experts. They all know why Lionel Messi gets paid more than anyone else on his team and nobody minds. Everyone, though, thinks Jack and Jill should be paid the same. Let’s find out, together, as to why we don’t think so.
Sports agents are ninja compensation experts. They all know why Lionel Messi, comparative to the value he creates, gets paid more than anyone else on his team. Same team. Same grade (Global Elite Football Player). In fact, their very livelihood, as sports agents, depends on this. Economic research has validated the accuracy of their art.
We are all entrepreneurs, or sports players, because we all must create a product (ourselves) that ascertains a certain amount of comparative value. But somehow everyone thinks Jack and Jill should be paid the same. Let’s find out, together, as to why we, humans, don't think so.
So, what makes Jill believe she is an entrepreneur?
Well, when she ascertains that she alone (or her enterprise) can uniquely create something of value. And… when she knows she will be rewarded, as compared to others, in proportion to the value she creates. Meaning – if Jill creates more value than others, she comparatively, will earn more than those who do not. When we believe, realistically, we are worth more in pay, it is because we have created a higher validated value than others – comparatively.
This does not mean that such an event makes us holistically better than someone else with a lesser comparative achievement. Not at all. It does mean, however, the market by defined criteria will rightly determine your comparative performance.
The market will determine your fair market value.
A value that all will and can accept.
When we ask CEOs “Should everyone in the same grade be paid the same way?” They, on average, answer as follows: “Yes, this is what our Head of HR and Head of Total Rewards has said is correct. Everyone in the same grade should be paid the same. Internal equity.”
We tell them this is wrong*. Comparatively. We tell them if, and only if, proof can be garnered**, that they should insist on a comparative differentiation in pay. Even in the same grade.
Business is not equity. It is performance.
Why this comparative nonsense? Please, author, get to the point. OK – here it is: we don’t think so. Literally. In the world of scientific neuroscience research we, as humans, do not think this way.
The ventral striatum (one of the areas in our brain) constitutes one of the main structures of the reward mechanism and seems to play a role in the formation of stimulus – reward association. (1) The research tells us that we are hardwired to receive a psychological reward when we are compensated more as compared to others for the higher value we create. In contrast, we become upset with childish peevishness when this does not occur. A “Not fair!” mantra is forced into our ears. It is unpleasant. Like a bad jingle tune, it won’t go away.
What are the underlying facts?
- Over 50 years of psychological research has shown that social comparisons form one of the cornerstones of social cognition.
- Humans spontaneously rely on social comparison when processing information about themselves or other people.
- What seems to characterize people’s subjective well-being is not only how much they own in absolute terms but also how much they own in comparison with others.
This is also tied to the internal evaluation of fairness that maps pleasure versus work. Research published in the American Economic Review bears this out. A simplistic summary states it this way: If you want to consume more today you have to prove it by also working more today. This self-realization "emerges as the internal, self-imposed, endogenously optimal second-best rule designed by the cerebral side of the individual to counter the tendency of the impulsive side to over consume." (2)
We enjoy pleasure when we know, when we believe, we have comparatively paid for it. This is one of the reasons why rich kids, who do not expend a lick of work to match their copious expenditures, are often miserable. In their hearts.
The brain’s perception of pleasure outlay (consumption) is matched by the brain’s understanding of required value (work) to validate it. This is done by an internal comparison between the two vectors. Always. With this in mind, an article of interest is this month’s Harvard Business Review, Curtis Carlson (CEO of Practice of Innovation) writes that “value creation begins when someone has an insight about how to solve an unmet need and is motivated to turn that insight into a product or services.” (3)
The word “motivated” in relation to neuroscience now begins to take on a whole different meaning. It is not only an intrinsic ‘shangri-la’ within your solitary self, which is rewarding. It is also a feeling good about yourself in a world of intrinsic bluntness. In a world of comparisons where you can say fairly: “I am paid less then Jill because Jill has proven, in a fair world of value comparisons, that she is worth more. I now have something to fairly strive for. To be as good as Jill.”
Innovation, in part, depends on it. Employees and entrepreneurs are only in the game if Jill gets paid more than Jack. Because she deserves it.
*At BDA, we believe in teaching CEOs to become fair (emphasis added) sports agents. With pay cost reaching as high as 70% of MOGE, we are teaching them to understand the strategic muscle of one of their biggest costs.
**Sports agents are able to determine value to the dollar because performance criteria, is known, seen and validated. Most companies do not have this capability. Until which time this capability is obtained, you, in error, must always pay everyone the same.
1. GAYANNEE Kedia, Thomas Mussweiler, David E.J. Linden; Mechanisms of Social Comparison and Their Influence on the Reward System, Neuroreport. 2014 Nov 12; 25(16): 1255-1265). https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4222713/
2. BROCAS Isabelle, CARRILLO Juan D. 2008. The Brain as a Hierarchical Organization. American Economic Review, 98 (4): 1312-46. https://eml.berkeley.edu/~webfac/malmendier/e218_sp06/Carrillo.pdf
3. CURTIS, Carlson. Innovation for Impact, Value creation as an active learning process. Harvard Business Review, Nov-Dec 2020 126-133 pg. 130.
Michael is a senior Total Rewards leader with 26+ years in the field. He comes to us from Nestlé, where over the course of his career he held leadership roles on both the compensation and benefits side in their global Total Rewards organization in Switzerland, China and the USA.
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