If you look at the political movements of the past fifty years, there seems to be two distinct camps. Make everyone equal, or make a few rich.

If you take our current capitalist culture, the equation is skewed towards the few and yet having lived in that world I know only too well that effort, value and wealth are not necessarily correlated as the proponents of that culture would have you believe.

The ethos that hard work alone will bring success is an adage designed to make the poor work harder, not make them richer.

People are paid more today based upon their age, job title and industry than they are on the output and profit they create.

I have lived for long periods on the wrong side of that equation. I have watched others be remunerated highly in comparison, often for doing very little actual work.

Inequality breeds resentment, and in the work place it can be conducive to poor output of your better workers if they sit on the wrong side of the fence.

If you want to see how animalistic equality of remuneration is, then look up the video of a test where two monkeys were rewarded for the same task differently. One was given cucumber and one grapes. The one who received cucumber very quickly becomes angry at the unfairness of their reward.

Everything above would indicate I am all for paying people the same across the board, but that’s not actually the case.

I believe that the capitalist system is the better option, it’s pushes people to try harder; but my issue lies with the inequality of reward that goes against this natural improvement ethos.

You see you can’t with one hand ask people to try harder, but then on the other reward them unequally for their efforts.

As humans we are not natural believers in democracy. People will find this an odd statement, but to me democracy is the product of our culture. Take humans out of the culture into which they are born and remove their education and democracy probably wouldn’t be the default setting.

Business isn’t a democracy. We don’t elect leaders, in fact our leaders often don’t have our best interests at heart; but they are supposed to be the best of us. Often this point is missed. We recruit serial CEO’s or people with specialist knowledge which means they are ill equipped to lead.

Because these people are ill equipped to lead and view the business as a whole they start to surround themselves with equally ill equipped people. They recruit in their own image.

This creates inequality, as often the elite protect and reward themselves when they have no real effect on the output of the business. They are the leaders for the sake of leadership while the real captains of the ship reside as unsung heroes.

When you’re starting your business then, it’s really important that you get the equality equation right. In order to do this you need to weight up output vs risk.

While the product you output might look like the most valuable thing you have to measure this is in fact not the most important factor for working out pay.

Risk is key to our capitalist culture. In any business the owner carries the most risk. It’s their money that’s being played with, their bank account that gets hammered if the company does badly. In the same way then as the business does well it is the risk takers that are rewarded.

When you look at risk and output then, you can start to put people into levels. The highest risk takers go at the top, often this is simply you. This is then followed by the ones who affect or product the most output.

If your CEO does not affect or product output then they shouldn’t be your CEO. There’s a real temptation to say that because someone is in the role of CEO that they affect the business but you need to learn to look beyond the title and understand if the business works and moves in spite or because of their actions.

This is a complicated task. Your CEO might look like they do little yet by recruiting the right team around them this is simply a basic factor of being a good manager.

Moving forward then, you should look at the levels that people sit at and reward accordingly. No two sales people should earn different sums unless the requirements placed upon them are different. A salesman on the road away from their family takes more risk than one who sits in an office from 9-5.

Managing and understanding this equation is a big ask. You will find that some areas of your business demand more money because of their role and yet have comparatively little effect on your output. This is where the risk of their role either to themselves or to the business must come into play.

Don’t be afraid to challenge common concepts that people in certain job roles are worth fixed amounts etc, perhaps to your business they are not as valuable and as such you shouldn’t be forced to pay the higher price.

If you need to pay people more or have better workers than others, bonus schemes are often a better way to do this than basic salary because they are directly linked to output. Employees will always look at their basic salary first and bonus second; every business has inequality but a bonus scheme allows them to rectify it.

Chapter Summary:

• Weigh up risk and output when deciding on pay
• Group people into levels and pay them the same (add bonuses on top)
• Be fair with basic salaries and allow the bonus scheme make people pay different.

Read our next blog post “Be a conductor not a manager”.