Stephen, I am not going to attempt to convince you that fair is good enough. In a diverse society, one has to learn to celebrate commonality of ethos — fairer or ‘more just’ compensation schemes — as opposed to insisting every one see things exactly the same way.

I appreciate then the fact that we both are interested in compensation schemes that do not exploit workers or employees.

I want to note here, however, that is important to realize that workers in of themselves typically do not have the capital to jump start the sorts of huge enterprises that exist today. This is the reason for failure of more than half of the 70% of new businesses that fail — running out of capital.

It’s the reason entrepreneurs that secure venture capital sometimes are willing to give up 80% of the company for actualization of their dreams — 20% of US$1 Billion in the not-too-distant future, and meaningful engagement with innovation objectives in intervening period is better than 100% of a business that fails for lack of capital.

This is classic Pareto optimality. The entrepreneur is strictly better off. The VCs are better off. The economy and government are better off. There are more jobs in play within society.

If investors by proffering capital render businesses feasible, they deserve a good return on their capital. This is where Pareto optimality comes in, which is, “what sort of division of the surplus is Pareto optimal?” Employees would love to get more than the minimum or reservation wage for every cadre of responsibility or skill. Investors will like to get as much return over their minimum required return as possible. Pareto optimality is the best rubric for management of these sharing of the surplus concerns. By studying compensation, academics — who are supposed to be objective players (I know this is not always the case, but it is supposed to be; it is why most universities are owned by non-profit entities)— help ensure rubrics for Pareto optimality are robust.

That being said, I concede that for the most part, present arrangements cannot be construed to be robust demonstrations of the Pareto optimality concept. There are, however, some companies doing much better than the rest of the crowd in so far as Pareto optimality of compensation schemes are concerned.

Appreciate the engagement.

Written by

Educator and Researcher, Believer in Spirituality, Life is serious business, but we all are pilgrims so I write about important stuff with empathy and ethos

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