The director’s crisis

Since hourly salaries for directors have been introduced, many companies and organizations have been democratized. Although the directors still bear the risk of bankruptcy, they are no longer the “boss” who makes all the difficult decisions and who are responsible for everything. These days, most directors do not even carry much more responsibility than the average department manager.

Then there was a time when if the company suffered a loss, it made cut backs but the director still put the company proceeds in his own pocket. But now directors not only pay themselves for the additional risk that they still bear, but also for the additional responsibilities that they have not been carrying for decades.

However, hourly salaries for directors have also caused another problem. It is no longer possible to replace entrepreneurs and the directors of small organisations. As a consequence, most small businesses and organizations are now going bankrupt within five years after the founder/director’s retirement.

Traditionally, ten years before his or her retirement, a director would appoint a substitute which they would then train. In those ten years, the substitute would receive regular salary increases, and when they took office as the director, their salary would increase even further.

Nowadays, the substitute’s salary still increases during their training, but not when he or she takes over as a director. However this leaves the case that around five years later, he or she may arrive at the curious situation that, based on their increased experience, he or she can earn more at another organisation as a regular employee than as the director of the organisation they head. As a result, it has become impossible to educate replacement directors.

To solve the replacement problem, boards often appoint directors from outside. Unfortunately, they often lack the knowledge and experience in the specific field of work that are required to be able to solve many of the company’s problems. This creates a director’s crisis, whereby one of the employees may grab hold of the power while the rest of the employees are off looking for another job. These events signal the end of the organization.

The solution to the director’s crisis is to introduce democratization. In a crisis, the director asks the employees for advice. Based on their knowledge and experience, every manager makes a proposal that, from their perspective, will offer the best solution to the problem. The director then makes a choice between the proposals, and settles the issue.

In this scenario, the director still bears the risk, but only part of the responsibility. This means a director is entitled to a higher salary than ordinary employees. But not as high as the case would be when he or she would be the “boss.”

It is important for people to realise that entrepreneurs and directors play an essential role in companies. Without entrepreneurs, companies would never get off the ground. Without directors, these companies would go bankrupt when the entrepreneur calls it a day. This essential function is therefore highly valuable, a fact that is to be expressed in the salary the director takes.

Should directors be punished for the forty years during which they abused their power to increase their own salaries? Maybe. But with this demand, employees would be cutting off their own noses too.

The alternative to large companies who are cutting salaries and creaming off employee benefits, are medium-sized companies with a few hundred employees, managed by entrepreneurs who have an interest in paying their employees a good salary, allowing them to attract good employees.

But there is not a single soul in the world who would do all the work necessary to set up a medium-sized company if he doesn’t know beforehand that he would be earning considerably more than his employees.

Only when employees are willing to pay entrepreneurs and directors more, will it be possible for them to also earn more in the future.

Smart savings ensure companies become healthy

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