SHOULD BUSINESS LEADERS CONTINUE TO ‘EAT LAST’ IN THE FACE OF ECONOMIC STRAIN?

In 2014, Simon Sinek’s cult book Leaders Eat Last shot to acclamation. Sinek highlighted the dynamics that inspire leadership and trust, asserting that for someone to be a leader as opposed to a dictator, they must first take care of their people, and only after should they think of themselves. As leaders, says Sinek, our sole responsibility is to protect our people. In turn, the people will protect each other and advance the organisation.

2022 saw business founders and those in executive and C-Suite positions tasked with making more difficult decisions than ever. Inflation, increased interest rates, hiked energy costs, strained supply chains and a cost-of-living crisis impacted the business world in a myriad of ways, putting pressure on leaders to prioritise long-term sustainability and potentially cut jobs and bonuses.

That being said, some leaders have continued to receive bonuses and salary increases despite economic pressure, and some argue this is justified due to the economic and social contributions leaders make. Do business leaders deserve to receive bonuses, or should they continue to ‘eat last’, even in the face of economic strain? We investigate…

DO BUSINESS LEADERS DESERVE TO CONTINUE RECEIVING BONUSES AND PAY RISES?

In the UK, we finished 2022 with an interest rate of 3.5% and an inflation rate of 10.7% - breaking records. A cost-of-living crisis has impacted consumer-spending rates and geopolitical events have caused an energy crisis and disrupted supply chains. As a result, businesses from a variety of industries have had to re-evaluate where their finances go.

Business founders, CEOs, and those in other C-Suite and executive positions arguably contribute significantly to the business they reside in. Their positions are distinctive in that they offer a unique set of skills and knowledge that would be hard to find elsewhere. This can be compared, for example, to more junior roles or employees with less experience who could be replaced easier.

In the middle of last year, it was reported that the average pay of FTSE 100 managers increased to pre-Covid levels, disappointing some employees, many of whom may be struggling more because of the cost-of-living crisis. In 2021, CEOs were also paid £3.62m on average, a marked difference from £2.78m in 2020 during the pandemic.

Gerry Lianos, CEO and co-founder of Raffolux, feels that differing pay rise allocations could damage employee motivation, and therefore the overall business. He comments: “During a recession, if it is not possible for both the leader and the staff to receive bonuses, then I do believe that the leaders should ‘eat last’.

“They have a responsibility to ensure the success of their company, and negative sentiment throughout a firm caused by unfair pay allocations can be far more damaging than a leader - even a good one - not receiving their proper bonus for a period. Any available finances to be put towards bonuses should be distributed in reverse, with base-level employees receiving the highest proportion of their usual bonus, and leaders receiving the least (or none).”

Size Matters

It can’t be denied that the size of a business matters when considering whether leaders should eat last. In a small business, every role matters as every individual has a notable amount of responsibility and ownership over their work in a way that likely doesn’t exist to the same extent in a large organisation. Therefore, justifying the importance of a founder or CEO over other roles in the company is harder to do.

While founders of small businesses and start-up companies tend to take modest salaries at the beginning of their firm’s growth anyway, with the main goal typically being to scale their business out of passion.

Riannon Palmer, founder and Managing Director at PR company Lem-uhn, feels that it’s important for businesses to be conscious of the ‘public mood’ from a PR perspective. She comments: “In terms of leaders of big corporations taking big pay rises and bonuses, the story is a little different. Larger companies aren’t as dependent on profits to secure pay rises for the big bosses. But companies must take into account the public mood. If the company is performing well, all employees should benefit, not just the CEO. Similarly, if the company is going through a downturn, then all employees including leaders should have equal treatment.

“Employees are at the heart of any company and companies need to look after them, or risk them leaving. From a PR perspective, bosses taking big raises and bonuses are also vulnerable to bad press not just for them but for the business too.”

David Rajakovich, serial entrepreneur and thought leader, echoes the sentiment that the larger the organisation, the more they need to pay attention to public opinion and reaction. He says: “The larger the organisation, the more of a media spotlight there will be on them. Therefore, they need to be careful about how this plays out in the court of public opinion because CEOs of larger organisations are political by nature. Whereas for founders and earlier-stage business owners, this is less of a concern – it’s more about considering how you move your business forward.”

Performance Matters

Indeed, the performance of a business also matters when determining whether higher positions deserve more remuneration for their work. From a founder’s perspective, the performance of their company is likely to determine how much of a payoff they receive at the end of each year. Despite this, some founders may want to maintain their salary, even if their business suffers from external pressures, which may lead to them making financial cuts in other areas of the business.

In contrast, if a company is in the lucky position of experiencing growth in an economic crisis, it might be more likely that a founder will give themselves and company execs a pay rise. However, some founders, especially those in retail and consumerfacing businesses, have needed to take a pay cut despite growth, as the cost of supplies and materials has gone up, leading to tighter profit margins. Nevertheless, some argue that if a business is performing well, it’s a result of everyone’s work and therefore, every employee should be paid, not only those in exec-level positions.

Palmer continues: “As a solo founder, the majority of my pay comes from company profits. This means if the company doesn’t perform well, I earn less. I see the argument from both sides. Being the leader, the company’s performance is ultimately determined by you. However, this means you also have the pressures that come with this. Furthermore, founders tend to be always on, working a lot more hours than our employees.”

BUSINESS LEADERS: THE FABRIC OF SOCIETY

Businesses are arguably the fabric of any capitalist society. Therefore, many claim that those individuals who keep businesses running contribute immensely to society and the economy as innovators and job creators and should be paid in alignment with this no matter what.

Economic crisis hurts every aspect of society, but an economy strengthens from growth in a workforce, strong productivity and rising exports, all of which are determined by the leadership of founders and those in exec-level positions. Arguably, leaders contribute a lot to society, and if we are to achieve a strong economy once again, perhaps an incentive through bonuses and pay rises for founders and execs is justified.

Lianos continues: “Of course, there is an argument that a leader creates opportunity and so deserves to be paid despite market conditions. There seems too often to be an assumed principle behind questions of this nature that if a leader benefits from a pay rise, then this must be at the expense of the employees.

“Leaders who perform well elevate the performance of the entire firm, and if that has led to the facilitation of a structure where people can be remunerated well and earn pay rises and meaningful promotions, then why should they not share in the benefits of their work?”

Meanwhile, Rajakovich feels that the type of business leader determines whether bonus remuneration is awarded. He comments: “We to separate the truly innovative leaders are driving business value for their businesses and ones that are more like caretakers who are going with the status quo.

“Through their own intellect and ability to make things happen, business leaders who are highly innovative have driven business results relative to their market and peers, and should be rewarded for this in the form of bonuses and pay rises. However, they shouldn’t if they’re coasting and doing just as well or worse than their peers.”

WHAT WOULD SINEK SAY?

From Sinek’s perspective, a leader ‘eating first’ could have varied consequences. For example, a leader putting themselves first, Sinek believes, has the potential to materialise into a dictatorship which could have dire consequences for a firm’s growth. He says that the best organisations don’t view individuals as commodities. This is because, when a leader puts their employees first, their workforce gives them everything they have to help the organisation grow.

Despite this, there are some very evident and convincing reasons why business leaders deserve additional remuneration based on their effort and knowledge, even in an economic crisis. However, a business’s size, performance rate and a founder’s attitude all come into play when deciding.

Either way, a strong economy is bolstered by great businesses with great people leading them and pay rises and bonuses may work as effective rewards and incentives, helping to build our economy sooner rather than later. 