In his book Predictably Irrational, Dan Ariely notes that from about 1978 to 1993, the average pay for a public company CEO climbed from 36 times the average worker’s pay to 131 times. In order to "shame" companies into holding back on lavish pay for CEOs, the Securities and Exchange Commission began requiring publicly held firms to disclose the pay of their top five executives in their financial reports. The result? Since that rule was implemented, CEO pay has skyrocketed upward, to 369 times the average worker’s pay, nearly three times as high a ratio as before! And this is a real economic issue. One academic study, in fact, estimates that by 2003 the combined pay of the top five executives at public companies had climbed to more than 10% of the company’s net income, compared to less than 5% prior to 1998.
Lots of reasons can be posited for this yawning pay gap. Globalization, for instance, may be holding down the average worker’s compensation, while also bidding up the demand for capable top executives. But I think Ariely’s hypothesis is more plausible: By making a senior executive’s pay directly comparable with other senior executives at other public companies, the SEC unintentionally generated a feeding frenzy of comparison shopping by executives. You can’t blame a CEO for competing with other CEOs to have the best package, and this became a lot easier once the SEC made the information freely available.
Is it possible something similar is now happening to the rest of us, as a result of the e-social revolution and the dramatic increase in transparency that it is generating? While it’s human nature to be social and want to help others, we also have a natural tendency to be competitive, envious, and jealous of others. It is our nature to evaluate our own lives in relative terms. I’m happier when things improve for me relative to how they used to be, but I’m also happier when things seem better for me than for my neighbor. And social media platforms now allow me to make much more direct comparisons.
Think about it: We compete to have the most Twitter followers, the most LinkedIn connections, the coolest status updates, the most interesting Facebook friends, the cutest pictures, or the funniest videos. We compete to display our own knowledge and insight, because—at some level—we want to display better knowledge and insight than others.
Not convinced yet? Consider the way games and contests are being used now, in the e-social era. "Gamification" now motivates many people to live healthier lives, to succeed in their diets, and even to consume less power at home. Marketers use gamification to sell products and engage customers in more active relationships. And gamification may soon revolutionize education, just when we think the current system is irretrievably broken.
If you think about it, the concept of a free-market economy itself is a kind of gamification of human production. Yes, we’re all happy when we make more money, but we’re happiest when we make more money than others. Just ask any CEO.
Competition can be a marvelous thing, but envy is its dark side. And before you condemn CEOs for such envy, ask yourself first whether you’re part of the 1% or the 99%.
[Image: Flickr user lamazone]