The Prime Minister's call to India Inc to trim salaries of top executives has got thumbs down from industry, even as CPM celebrated it as a validation of its critique of Manmohanomics.
Salaries are a product of demand dynamics, said Sunil Bharti Mittal, the just-elected head of the corporate club, the Confederation of Indian Industries. A head hunter pointed out that CEO compensation in India is nowhere the global standards. If the median pay of US CEO’s is $6.5 million per annum, Indian CEO’s only earn about $0.5 million per annum. Head hunters say that it is a seller’s market.
This brings us to the real question. “Is there a skill shortage at the top that is influencing the price of CEO?” Mittal categorically claims that there is shortage of skill at the top level and more specifically in the service sector, which is why pay packages of senior executives are high.
But if you look at an organization with an eye of an HR researcher, who is from organisational behavior lineage, this claim may not be justifiable.
If you look at an organization from inside, it comprises of hard architecture ( 3 S -strategy, structure and systems) and soft architecture ( that enables people to coordinate, prioritise, and decide). As hard architecture alone cannot alone respond to internal and external demands, organization needs soft architecture to absorb the ‘residual variety’.
If the ‘residual variety’ to be absorbed is high, then you require more integrators (euphemistically called as managers whom we hire at middle level, senior level and very senior level) to absorb this variety. It is senior level’s responsibility to design this hard architecture or adopt/adapt the right one.
If they do not adapt/adopt right architecture, then the entire ‘residual variety’ has to be absorbed by the soft architecture. For instance, take the example of Japanese. They ‘simplified’ the ‘complex’ manufacturing system (the Toyota way) so well that they could afford a flat ‘managerial structure’, because the entire variety was absorbed by the ‘first level’.
On the other hand, senior management in India (who are brought up on the staple diet of western management principles) do not spend time on designing the right hard architecture of the organization. Instead, they are more than likely to ‘pass’ the entire burden of ‘residual variety management’ to the soft architecture. They hire more middle managers to absorb the residual variety who essentially become ‘highly paid coordinators’. They work ‘overtime’ to sit in meetings to tie loose ends. They have to say ‘yes’ to all decisions, because people below do not have the ‘bandwidth’ to take those decisions. And naturally, because they work so long and so hard, often at the cost of their personal time, they justify higher salaries. Because they themselves are senior management, there is no one who can ‘challenge’ this logic.
This virtuous or vicious cycle (depending on which side you belong) is then nurtured and fostered by everyone. Juniors pass up all the decisions to the higher ups assuming that they do not know enough. Seniors keep on taking those decisions to justify their higher salaries. As juniors do not develop because of ‘passing up’, seniors feel even more righteous in not allowing juniors to take those decisions.
Board and shareholders want one head to be responsible. They therefore want ‘accountability’. This further nurtures centralised decision taking. New Systems are installed to establish this control. For instance, instead of ERP enabling front line people to absorb the residual variety, senior people use ERP to develop dashboards to get even more control over their first level. The cycle continues to be nurtured.
If you closely watch these top-heavy organizations you will find other symptoms: hero worshipping fosters high handed behavior of few, front line people feel more and more disempowered thus making the organization prone to slow reaction time, band-aid solutions that allow seniors to save face or produce immediate results are in demand, serious long term initiatives are run by mavericks in small divisions far away from central office, politics is nurtured because some decisions are bound to look ‘partisan’ even when taken in the best interest of the organisation.
When this soft architecture still cannot absorb the residual variety, the organization loses slowly and surely, like what is happening in the auto industry, or is taken over by another organization. Because everyone in the industry is facing the same ‘issues’, organization does not see any solution to this problem. When Jim Collins in his research of Good to great found that only 12 organisations managed to perform well over 75 years, and the leaders of these organizations were not the usual types, he found it intriguing. An organisational researcher would not be too surprised.
Surprisingly, designing hard architecture is not supposed to be a job of a leader even today. We love to have leaders who are flamboyant speakers who look great. We believe that leaders are those who take ‘quick action’ instead of deliberating on it. When our seniors take ten hours to meet us for ten minutes for an important meeting, we justify that they are very busy. When our seniors lack of timely decision delays our project, we take the blame on ourselves. Unwittingly, we foster this vicious cycle. This allows us to blame ministers and others for the ills and fortunes of our industry.
And if we belong to HR, whose job is to bring this to the light of all, we blame that HR is not getting its due respect.
