Question

THE DEMOTIVATION OF CEO PAY
How much did your CEO get paid this year? What did any CEO get paid? You may not know the exact amounts, but you probably think the answer is, “Too much money.” According to research from 40 countries that probed the thoughts of CEOs, cabinet ministers, and unskilled employees, we all think leaders should be paid less. Beyond that, we are clueless.
Where we err (fail to adhere to the proper or accepted standards) can be calculated by an organization’s pay ratio, or the ratio between CEO pay and average worker pay. In the United States, for example, the average S&P 500 CEO is paid 354 times what the lowest-ranking employee makes, for a ratio of 354:1 (eight times greater than in the 1950s). Yet, U.S. participants in the study estimated that the ratio between CEOs and unskilled workers was only 30:1! Americans are not alone in making this gross underestimate: Participants from Germany, for instance, estimated a ratio of around 18:1 when the actual is closer to 151:1.
In general, people worldwide are unhappy with—and demotivated by—their perception of inequity, even when their estimates of the ratios are far below the reality. Taking the German example further, the ideal ratio of CEO pay to unskilled workers as judged by study participants was around 7:1. To put it all together, then, people think the ratio should be 7:1, believe it is 18:1, and don’t realize it is actually 151:1. For all the countries worldwide in the study, the estimated ratios were above the ideal ratios, meaning participants universally thought CEOs are overpaid.
How does this affect the average worker’s motivation? It appears that the less a person earns, the less satisfied the person is with the pay gap. Yet virtually everyone in the study wanted greater equality. The ideal ratio, they indicated, should be between 5:1 and 4:1, whereas they thought it was between 10:1 and 8:1. They believed skilled employees should earn more money than unskilled individuals, but that the gap between them should be smaller.
No one in the United States would likely think the 354:1 ratio is going to dip to the ideal of 7:1 soon, although some changes in that direction have been suggested. Other countries have tried to be more progressive. The Social Democratic Party in Switzerland proposed a ceiling for the ratio of 12:1, but putting a cap into law was considered too extreme by voters. No countries have yet been able to successfully impose a maximum ratio.
Therefore, the job of restoring justice perceptions has fallen to CEOs themselves. Many CEOs, such as Mark Zuckerberg of Facebook and Larry Page of Google, have taken $1 annual salaries, though they still earn substantial compensation by exercising their stock options. In one extreme recent example, Gravity CEO Dan Price cut his salary by $1 million to $70,000, using the money to give significant raises to the payment processing firm’s employees. Price said he expects to “see more of this.” In addition, shareholders of some companies, such as Verizon, are playing a greater role in setting CEO compensation by reducing awards when the company underperforms.

there are 2 questions:

1- Read the case titled, “The Demotivation of the CEO Pay’ and explain the following two questions:
a. Which motivation theory would you use to explain the above case? Why
b. Can you solve the problem raised in the above case in all countries? Why?

2- You are a management consultant in Oman. One of the Omani domestic companies wants to expand to two different countries – one in Asia and the other one in North America. The company is hiring you to assist them in understanding ‘material culture’ and ‘social culture’ so that they can create appropriate strategies for these two countries.
a. Explain what is ‘material culture’ and ‘social culture’ to this firm with appropriate framework
b. What are the problems this firm would face if 2(a) is not handled properly?

Answer 1

Answer 1.a

According to me, the above para suits Vroom's expectancy motivation theory.

Expectancy theory aims to explain how people choose from variable actions. Vroom defines motivation as a process that governs our choices among alternative forms of voluntary behaviour. Expectancy theory is determined by appraising three factors:

Expectancy: The person's belief that more efforts will result in more success. it will result in better performance.

Instrumentality: The person's belief that there is a connection between activity and goal. If you perform well you will get a reward.

Valence: The degree to which a person values the reward, the result is success

Answer 1.b

No, such a problem cannot be solved in all the countries because of the level of superiority and designation.

The CEO of the company can not be compared with the executive level of the person. The post of CEO gets after any voting rights of or with the majority of people on which everyone is agreed upon. In another way, their remuneration also decided in such meeting. Which always greater than a skilled and unskilled person.

Answer 2.a

"Social culture" factor can involve social attitudes, beliefs, education, legal and political ideology

"Material Culture" refers to the physical objects, resources and spaces that people use to define their culture. Which includes homes, neighbourhood, religious places, school, factories and plants, goods and product etc.

So, as a management consultant, it's necessary to study or understanding the material and social culture of that country which will give us better understanding and appreciation for the complex lives of the people who interacted with these people. It provides us with insight into the non-material culture, which includes idea, beliefs, habits and value of people. However, as a society and culture change, it's our responsibility to adapt to such culture and stay ahead of our competitors and remain retained and relevant in the mind of the customers

Answer 2.b

Firstly, the culture of that country should be adopted by the company for long-lasting growth in that country.

IF such a culture is not adopted and understand, will result in compliance risk and may the closure of the entity.

For eg, Beef is ban in India and such product introduced in the Indian market then it will result in failure of the sale.

Decline sale will result in less production and loss to the entity. Because this can affect the culture of India.