UNAIR NEWS – The 7th International Conference and PhD Colloquium for Economic and Business (ICEB) took place on Wednesday, September 4, 2023, in the Fajar Hall, Faculty of Economics and Business (FEB) Building, Dharmawangsa-B Campus, Universitas Airlangga (UNAIR). Some academics from several countries also attended this event. A Canadian academic, Johnny Jermias PhD from Simon Fraser University, was present as a speaker. His presentation was about Compensation Equity and Sustainable Performance: The Effect of Governance Structure.
In his presentation, Johnny revealed that inequality in the industrial world is getting worse due to rising CEO salaries and decreasing worker wages. Thus, equal compensation is very important for sustainability.
“The pay gap between CEOs and workers can lead to negative reactions for this injustice. For example, employees who are dissatisfied with their compensation tend to express negative attitudes. Of course, this will lead to poor service and production,” said the Canadian academic.
Increase transparency
Furthermore, Johnny said that in response to social injustice in the United States, the Senate enacted the Dodd-Frank Act of 2010.
“As a follow-up, in 2013 the Security and Exchange Commission also issued a guideline recommending that companies listed on the New York Stock Exchange need first to disclose the median total compensation of workers excluding the CEO, CEO compensation and the ratio,” he explained.
“So you can read the ratio between CEO salary and worker salary. So you can immediately see the main purpose of this law. The Dodd-Frank Act is to increase transparency,” continued Johnny.
Johnny hoped that this policy can increase company transparency, make companies more careful when raising CEO salaries, and pay constant attention to employee salaries.
According to Johnny, the salary gap indicates a company has an ineffective governance structure. However, this pay gap is also likely to be used to attract talented CEOs who can manage the company well. However, it is necessary to provide incentives to the executor.
“So a salary gap is a good thing from this perspective because it attracts, retains good talent, and also motivates managers to compete so that they can progress and their compensation will be much more effective,” said Johnny.
Pay attention to other aspects
Apart from the pay gap, paying attention to other aspects in achieving work balance is also necessary. According to Johnny, the company’s survival depends on the main stakeholders, not just shareholders.
“For example, customers. If they are not happy, they won’t buy that company’s products again, right? If you have a bad relationship with the government or the authorities, the government may interfere with your operations. Or maybe they will oversee your operations. Moreover, this may harm your performance,” he said.
According to Johnny, shareholders will benefit when the company pays attention to key stakeholders, such as business opportunities and access to capital costs. (*)
Author: Aidatul Fitriyah
Editor: Binti Q Masruroh
