Fair pay

There used to be an old joke at the major accountant firms and consultancies that the fastest way to become a partner was to join John Lewis.

Now it seems David Cameron wants everyone to be one. Certainly, new ways to incentivise staff may be needed when pay rises are impossible. After all, we are all in the same ship, and with the UK topping £1 trillion in debt, unemployment heading past 2.7 million, and the economy shrinking again, it’s looking more like a Mediterranean cruise every day.

But does this have to mean a move to a new meritocracy (or mediocrity) with all companies becoming partnerships? Do we need a new pay ethic, or a new work ethic?

If you want to talk about work ethic, there is nothing more depressing than watching how China can build a 30-storey hotel complete with fittings and furnishings in 360 hours. Imagine that happening in Britain if you can. Perhaps this goes some way towards explaining why outsourcing works and so many Britons can’t get a job in a local coffee or sandwich shop. (Then again, perhaps such rapid growth is symptomatic of imminent collapse.)

But there’s another side to the work ethic coin, and that’s represented by the countless entrepreneurs reading this blog, who work long stressful hours trying to build the future against outstanding odds, with little short-term rewards or pay.

At a cleantech event at Lloyds of London on 23 January, I was reminded about the golden rule: ‘those with the gold make the rules’, and from Rob Hokin: ‘It’s always the management team investors look at first’.

This remains the case. With money in short supply, investors no doubt want to see as much ‘partner’-level and senior talent on the teams of start-ups as possible. That way they can mentally add up the equivalent city salaries those people would get, see how much free value is going into the business, and leverage that with a small amount of actual cash.

It’s sad, but today’s cash, particularly at the Dragons’ Den of the market, seems to buy a lot of human effort, or flesh in a Merchant of Venice sense. A sadder reality is that those companies that make it through the early stage often get reset by term sheets from Series A VCs hungry for another block of entrepreneurial time they can convert into preferred stock.

Those VCs might talk about the high risks of start-ups and young ventures, but then again, where is the risk in the current market? If businesses are focused on a market that is going to take two to five years to come to fruition, then what better way to avoid the vicious short-term risks of currencies, Iran, toppling economies and the general miasma of excessive debt that surrounds us all?

A venture bet on a future market avoids all this short-term risk, and accesses at least something predictable, particularly in cleantech. We’ll always need better, cheaper, more energy in the future.
Another place in which pay seems out of sync with the contribution made to the economy is the City, where executive salaries at big companies have kept climbing throughout the last four grim years. The government thinks it has a solution: it would like to give shareholders the power to curtail pay.

There is some logic to this: monster salaries never go down well in such difficult markets, and shareholders should have the right to challenge them robustly. But ideally, you want an equilibrium for success, where executives and shareholders can challenge and incentivise each other. If you constrain the executive taking risk, don’t be upset with low shareholder returns.

The same applies to start-ups. If you want Google then don’t de-value founders or discount early stage value too much. And if you want the company to be worth more than a house in Mayfair, don’t start off pricing it as a suburb – even if it looks like a couple of geeks working in a garage.

Simon Daniel

Simon Daniel

Simon Daniel is the inventor of the USB battery and folding keyboard. He was also CEO of Moixa, the renewable energy group.

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