Income inequality is a big topic in American politics today, but what’s not getting as much press is that inequality is growing among businesses, not just among households. In the Harvard Business Review, Walter Frick observes that “the majority of the increase in income inequality in the U.S. and elsewhere is driven by differences in how well different firms pay,” and that this gap between high-performing, high-paying organizations and the rest is still widening:
That pay gap seems to be linked to rising inequality in corporate performance. But there are two explanations of why it is happening. It could be that different companies are paying more generously or less generously for the exact same sort of work. For an extreme example, take Chobani. In April the yogurt company’s CEO decided to reward full-time employees by giving them stock, based on tenure and other factors, amounting to an average of $150,000 each. If you’re, say, an HR manager who happened to take a job at Chobani early on, your compensation suddenly looks considerably better than many of your peers.
It could also be that more-productive, higher-paying companies are hiring better workers. Engineers at Google might be getting paid more than engineers elsewhere because they’re better engineers. If these highly sought-after workers are increasingly clustered at top companies, that could explain the rising pay gap between firms. It’s safe to say that a significant part of the growing gap in how well different firms pay can be attributed to the latter “talent sorting” effect — but exactly how much continues to be debated.
A couple of our team members found this concept of “corporate inequality” fascinating, and Frick’s article got us to thinking about the impact it might have on how organizations compete for talent: