Sal Vittolino

Income inequality is suddenly big news in America and has entered the political arena with full force. The issue is widely predicted to be the major theme of President Obama’s 2014 domestic agenda and the Democratic Party’s efforts in the 2014 midterm elections. The new mayor of New York, Bill de Blasio, ran for the post – and won overwhelmingly -- on a “progressive” platform focused laser-like on reducing the gap between the city’s rich and poor.

Income inequality is, of course, not new news. The relevant data on the issue have been reported in the media for many years. Its current political prominence may reflect, in part, the steady, albeit relatively slow, reduction in the nation’s unemployment rate, making jobs – their creation and preservation – somewhat less potent as a political issue and elevating the importance of the compensation people receive for the work they do.

The statistics on income inequality in America – especially the increase in inequality -- are indeed startling. Here, from the U.S. Census Bureau, are the 1970 and 2012 mean household incomes, in 2012 dollars, for the five quintiles of the U.S. population plus the top 5%:




In the U.S. in 2012, the top 1% of earners collected nearly a quarter of all income.

We are organizational psychologists who have been studying the relationship between workers and management within companies for many years. The most dramatic compensation statistic at that level – the within-company level-- is the change in the ratio between the average pay of CEOs and that of their employees. From a ratio of about 40 in 1960, it surged to about 350 in 2011!

Given that reality, one would expect severe discontent among workers, showing itself in widespread public protests and union activity. That hasn’t happened except among very low-paid employees in the retail industry, especially fast food companies and WalMart. (We don’t count the Occupy Wall Street movement, beginning in 2011, as worker protests considering that its participants, studies show, were disproportionately highly educated male whites from higher-income families.)

What is going on among workers not in very low wage jobs? Do they not understand their condition? Why aren’t they “on the barricades”?

The major reasons for this apparent passivity are, in our view, twofold: The impact of the Great Recession on worker priorities and the absence as a source of discontent comparisons by workers of their salaries with those of executives.

1. The Impact of the Great Recession

In the 2nd edition of The Enthusiastic Employee: How Companies Profit by Giving Workers What They Want, we examine in a new chapter how the Great Recession affected worker attitudes. The 1st edition of the book was published in 2005 and the 2nd in 2013. The data for both editions are taken from employee surveys conducted by our firm, Sirota, over many years. In all, 8.6 million employees in 412 companies are included in the analysis for the 2nd edition.

The new chapter on the impact of the recession is based on the surveys conducted in 2006-2007 (before the recession), 2008-2009 (during the recession), and 2010-2011 (after the recession, i.e., the start of the recovery).

Our findings were surprising to us. For one, the overall satisfaction of the surveyed employees improved during the recession. While the change was not large – 3 percentage points -- morale even holding its own in a recessionary period was not expected, at least not by us. Second, feelings of job security declined – that’s not surprising -- but declined by just 2 percentage points. Finally, attitudes towards pay improved, by 3 percentage points.

What is going on here? The answer can be found in the “qualitative” data collected in the surveys, the responses to the various “write-in” questions we ask that lend depth and understanding to the “numbers” generated by multiple-choice questions. Those answers provide a crystal-clear understanding of the data: the workers are saying, In this economy, I’m grateful to have a job! Here are a few illustrative comments of the point (more can be found in The Enthusiastic Employee):

o When I see what happened to the (company) plant on the other side of town, I thank my lucky stars I work for (writer’s company). 30% of the people in that plant were fired. But (writer’s company) does everything it can not to lay people off.

o Total Rewards and Recognition [a compensation program] was changed drastically this year. Some felt it was unfair. But some of us are very thankful that we have jobs in this economy and will remain working faithfully and loyally.

o Pay/compensation is actually reasonable considering the economy at this time. With other online companies and call centers closing across the U.S., we’re still here and running. Although raises and bonuses may be put on hold, I feel those are good actions to keep our business running and in positive numbers. I commend our upper management for that smart economic decision.

o With the economy the way it is, I’m just grateful for my job.

Security is, for most people, the most basic of needs. Its importance may not be evident when workers feel little insecurity – either in their own company or because there are plentiful opportunities elsewhere. At those times, other needs, such as advancement in pay or position, may predominate. But when security is threatened, job preservation is of enormous consequence and people are willing to make sacrifices to keep their jobs.

2. Comparisons with Executives’ Compensation

We have personally been involved in surveys of millions of employees – including discussions with them in innumerable focus groups -- and, with just one exception, workers have never mentioned comparison with their executives’ compensation as a reason for discontent with their own pay.

The exception: The company is doing poorly, the problem is seen to be the result of executives’ incompetence (or chicanery), workers are suffering (such as layoffs, elimination of salary increases, and reductions in benefits), but senior executives are still raking it in. That is galling to employees.

In other words, at least in America and in our studies, the key issue is not the pay of executives but, rather, whether they are seen to have earned it. And, in workers’ minds, a major measure of their having earned it is the impact of their performance on the workers. If the effect on workers has been positive, the view is: let them earn as much as they can – we’re benefitting from their efforts.

American workers are not socialists: they don’t resent pay discrepancies per se, or high – even huge – compensation for executives. Consider, for example, the stratospheric incomes of people like Steve Jobs, Bill Gates, and Michael Bloomberg. How many complaints have been heard about their earnings? We've heard none. After all, “they built their companies” and it would be almost un-American to resent those achievements or the compensation that goes along with them. The same is true of employees’ views of executives who are competent and whose performance has benefitted the workers. As we have seen, the benefit in difficult times is typically not so much increases in pay but rather the minimization of layoffs.

In other words, the focus on income inequality is somewhat off the mark when it comes to workers. They are interested in their own financial condition and not that of executives unless it can be shown that the two are related -- that workers will be significantly better off if executives earn less (or are taxed more). We think that in America that’s a hard sell.

For updated and detailed information about the research on which the book’s conclusions are based, visit us at http://www.sirota.com/enthusiastic-employee.