Changing the perspective on expenses

Where I live the media is in an uproar over expenses. Apparently:

Politicians are spending too much.

Bank CEOs are getting paid too much.

The worth of civil servants is being judged on how much they cost.

This of course sells newspapers and makes for good barbecue talk.

The astute leader will hit this head on and turn the conversation to impact and progress. The issue should be impact, not expenses.

Perhaps if your charity spent 5% more on overhead you would be 100% more impactful.

Perhaps if you invested $5,000 per employee on leadership development, turnover would be cut in half.

Perhaps if you paid your pastor twice as much, 10x as many people would gather to worship.

If you want to sell newspapers talk about expenses. If you’re looking to change lives, focus on responsibly spending whatever it takes to get the impact we’re all expecting from you.

 

 

 

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6 thoughts on “Changing the perspective on expenses

  1. Hey Russ,

    I think there’s more at play here than just the impact vs expense.

    The issue with Duffy is not that he’s spending too much, but rather that he lied in order to obtain money he’s not entitled to, which brought about a bribe from the PMO to end a senate investigation.

    Also, the issue that many have with CEOs is not so much that there’s anything wrong with making money per se, but that large differences in wealth are in themselves, arguably unjust. The fact that it was bank CEOs on the list is especially jarring, in a world still recovering from a financial meltdown caused largely by financial mismanagement.

    While I’m sympathetic to your point about assessing incentives and their impacts, it’s difficult to say, a priori, what sorts of incentives would bring about greater productivity. I can imagine that in a number of cases, the answer is not to “spend whatever it takes to get the [expected] impact,” but rather to spend the right amount of money on the right things.

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  2. Hi Murph,

    Good points. I suppose my frustration is that people, especially the media, often fixate on “the right amount of money” without considering the “right things” or benchmarking impact.

    About bank CEOs, why do you say it’s unjust to have large differences in wealth? What’s unjust about it? Do they not deserve it given the results they’ve produced?

    Leaders of banks take on significant risks, stress, employ thousands of people etc… It’s arguable that if they made even more money, they would provide even more jobs and inject more money into the economy, which would be beneficial to the majority of the population. I think people often forget that our system is based on risk/reward and there’s a reward (pay) for creating jobs and wealth for others. My perspective is that we should be thankful for the rich people who create jobs and wealth for others that aren’t willing to take on as much risk and prefer the stability of just getting paid.

    It’s like the striking employees I once saw at a rental car company at the Vancouver Airport picketing their employer, saying how much the company sucked. They were actually driving business away from the company which employed them, making it less likely they would get a raise. I’m struggling to see the injustice you speak of or what that’s anchored from.

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  3. Hey Russ,

    Of course, people who take on bigger responsibilities, risks, stresses, etc. should be compensated better than those whose jobs are less demanding. Similarly, jobs that require a high degree of training should be better compensated to provide an incentive for people to go into such fields. There is no problem with some jobs being better compensated than others, per se.

    That said, a high degree of wealth inequality in a society can be unjust in a number of ways.

    First, an executive, entrepreneur, etc. who makes a lot of money never does so by herself. She is always standing on the shoulders of other actors. For example, Zuckerberg built Facebook with programming languages and Internet protocols and even basic electrical systems that he had no part in inventing. To return to the example at hand, Bank CEOs coordinate financial decisions and execute plans with the cooperation and hard work of thousands of other workers, government agencies and companies. None of us is an island, and the people at the top of the corporate ladder are not the only ones (or even the main ones) responsible for creating jobs or wealth. I am sceptical about the validity of this sort of “trickle-down” or “job creator” economics.

    Large wealth inequalities are also unjust because they are dangerous to the proper functioning of a liberal democratic society. That is, the concentration of money and power in the hands of a few takes away both the ability of the “have-nots” to influence public policy (E.g. “Why vote? Rich people will just buy the politicians they want anyway.”) as well as the motivation for the “haves” to work in the public interest (E.g. “Why spend my tax money on public transit? I use a private jet anyway.”). Wealth inequality is also positively correlated with population-level negative health outcomes, (Source: http://www.cbc.ca/ideas/episodes/2012/01/16/left-behind/) which is a problem in a country like Canada where we like to think that the health of our fellow citizens is something that is important to all of us.

    Lastly, bank CEOs largely do not take on the sorts of risks that you’re talking about, and that many attribute to them: Can you name a single bank CEO who went to prison for anything that happened during the 2008 financial crisis? Can you name a single one who was fired without receiving a generous sum of money? The fact is, many of these rich people didn’t create jobs or wealth (just the opposite), and they didn’t take on risk in any meaningful sense either.

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    1. Murph, good points. What sort of threshold of wealth distribution would you say is healthy and when does it start to get out of hand like you’re describing above?

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  4. Here’s a good place to start if you want to learn about wealth distributions:

    http://en.wikipedia.org/wiki/Gini_coefficient

    There are many critics of the Gini coefficient of course, but for all its faults, it is a pretty standard metric used to describe wealth inequality. Here’s an interesting piece from Freakonomics where the Gini coefficient is shown to be correlated to intergenerational mobility.

    http://www.freakonomics.com/2012/01/19/is-higher-income-inequality-associated-with-lower-intergenerational-mobility/

    I guess the short answer is that the lower the Gini coefficient, the better.

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