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Why B Corps Should Cap Executive Pay

Words by Ryan Honeyman
Leadership & Transparency

This is a recurring series of excerpts from the book “The B Corp Handbook: How to Use Business as a Force for Good (Berrett-Koehler Publishers, October 2014). Click here to read the rest of the excerpts.

By Ryan Honeyman

Certified B Corporations are leading a global movement to redefine success in business.

As a community of thought-leading businesses, one of the best ways that the B Corp movement can continue to drive positive change is to address the controversial issue of executive pay.

For example, in 2013 the average pay ratio of a Fortune 500 CEO compared to the average salary of their employees was 331:1. Some employers have started to implement a cap on the ratio between the highest and lowest earners in their company.

Namaste Solar, a B Corp based in Boulder, Colorado, caps the ratio of its highest salary to its lowest salary at 3:1. Whole Foods Market, a publicly-traded member of the Fortune 500, caps its highest salary at 19 times the average employee pay. Certified B Corps that implement this practice typically cap their pay ratio between 5:1 and 10:1.

"Restructuring the payment and perks offered to our employees, so that production workers could reap the same benefits as upper management, was an important step toward equality for every team member," said Merlin Clarke, owner of the B Corp Dogeared Jewels & Gifts.

For many companies, the cost of adjusting base compensation to meet a specific highest-to-lowest-wage ratio will be marginal, as the changes would affect only a small number of entry-level employees. Matching benefits for both executive and non-executive employees, on the other hand, is probably a larger financial commitment and could instead be a long-term goal.
"At Whole Foods Market, everyone from the CEO to entry-level team members has the same benefits. The only differences are based on tenure with the company—the longer someone has been with the company, the greater his or her paid time off and the larger the company contribution toward health-care premiums and company-funded health-care reimbursement accounts.

"A cashier who has worked for the company for several years enjoys the same benefits enjoyed by the two co-CEOs of the company. It’s very powerful to be able to tell people about this practice. It creates a sense of solidarity throughout the organization," said John Mackey, co-CEO of Whole Foods Market.

Another reasons to consider capping executive pay is that more money doesn't necessarily make you any happier. For example, recent research suggests that a salary between $75,000 and $100,000 (depending on your location and cost of living) is the magic number. The study found that as people earn money from zero to $75,000, their happiness rises. Any more money after that, however, and it's just more stuff -- with no gain in happiness.

Image credit: B Lab

Ryan Honeyman is a sustainability consultant and author of The B Corp Handbook: How to Use Business as a Force for Good (Berrett-Koehler Publishers, October 2014). Ryan helps organizations like Ben & Jerry’s, Klean Kanteen, and McEvoy Ranch become B Corporations and maximize the value of their B Corp certification. To learn more, visit www.honeymanconsulting.com or follow Ryan on Twitter @honeymanconsult