Sunday, December 13, 2009

Why a CEO is paid well ?

There was once a land where the entire population worked at the widget factory with its huge widget machine. It created 1 billion dollars in revenue a year. Without it nobody could pay their mortgage, feed their kids or heat and light their homes. Their entire system would collapse and people would be without the necessities of survival.

One day the factory was churning away and suddenly it just stopped. The maintenance crews could not locate the fault. The governor called a big meeting and it was decided to find an expert to get the factory running again. The search went on for months, people became hungry and frantic. Finally they located one man that claimed he could get it running. They had no choice and told him they would give him whatever he wanted just to get it running again.

Little weather-worn old man showed up one day with a little hammer. He walked over to the machine, pondered a while then took the hammer and hit it. Suddenly it came back to life and the town rejoiced. The governor went to him with tears in his eyes "Mister, what do we owe you?". Little old man told him it would be one hundred million and five dollars. Incredulous the governor asked him "But all you did was just hit it with that hammer, we could have done that! A deal is a deal and we have to pay you but why so much money? Little old man says "Well, the five dollars is for the hammer, the hundred million is for knowing where to hit it."

The lesson: Knowledge and skill are commodities of labor.

1) As it applies to the laborer: The more abundant it is the less its value and the easier it is to replace.

2) As it applies to those in charge: The less abundant it is the more its value and is harder to replace.

That is until labor unionizes.

1) As it applies to the unionized laborer: Abundant labor becomes unnaturally  more expensive and impossible to replace.

2) As it applies to those in charge of the union: The less abundant it is the more its value and is harder to replace.


nanc said...

2010 and 2012 cannot come soon enough - sure I'll be a little older and more weathered like that little old man, but I know where the machine needs to be hit!

IOpian said...

A good kick might not hurt either.