The impending “wisdom-exit” and growing pay ratios between CEOs and the average worker

More are beginning to note the “wisdom-exit” which is about to impact. Also the ratio of CEO pay to average worker. Where does balance lie?

There are two core discussions emerging, both inter linked, on how the industry needs to start thinking more deeply about some of the ramifications of policies and investment.

The first is based on the point which EP has noted a few times that the average age of a CEO today is 62. This is invariably leading to arguably the greatest level of knowledge exit the industry has known as leaders retire. The “wisdom exit” may be a better term and over the next 5 years, it is expected that the industry will be seeing a natural loss which will leave a hole. The question is how can this be managed?

Of course the counter argument is that this opens the doors for new ideas, new thinking and new talent and of course, the world always naturally copes and moves on. However, the ideal is to create structures which can bring together a balance between retaining great knowledge and supporting future leaders.

This then does play into a wider, and important argument, that there is a need for more progressive structures to support talent as the existing models are struggling and need evolution. The question is whether enough planning is taking place and is more needed?

The second discussion is over the need to review business models and if models do need a natural reset. There are rising concerns over the gulf in pay between senior directors and the lowest levels whilst at the same time, the industry argues for the need to support and retain lower level talent. To place into context, the long term view is that the ratio in pay between CEO and lowest level should stand at between 20:1 and 25:1. However recent figures suggest that the ratios are exceeding this and better balance is being called for. In the US, CEOs were paid 351 times a typical worker in 2020 (Economic Policy Instit) and overall CEO pay has increased by between 1000% and 1300% , depending on the research report noted, since 1978. To place into context the ratio was 20:1 in 1965 and 58:1 in 1989.

This is now being questioned as many boards are asking for stronger retention, loyalty and skills. Where does the balance lie?

Again the counter is that this model has served shareholders very well and businesses have been very successful but where does the balance lie to ensure sustainable business?

We raise this point as, even in the last two weeks, we have attended three discussions on how there is a need to attract, recruit and retain and how there is not enough money in the pot.This is not really true.

The money is in the system, the question is how is it being used and how do we sort the issues which do impact the development of business? That is a decision for each business to make.

Written by Chris Sheppardson, Founder of EP Business in Hospitality