The Advisors' Blog

– Broc Romanek

Here’s the intro from this article in the “Harvard Business Review” (hat tip to Board Advisory’s Paul McConnell for pointing this out):

For much of the 20th century, workers at big companies were paid better than workers at small ones. An employee of a company with more than 500 employees historically earned 30%–50% more than someone doing the same job at a firm with fewer than 25 employees, for instance. But the pay gap between large and small companies has narrowed in recent years, and that decline is one reason for rising inequality in America.

It’s also a reminder that inequality is deeply intertwined with the day-to-day decisions companies make, say, about outsourcing manufacturing, or contracting with a caterer, or aiming for vertical integration, or focusing on the core. Big firms began doing countless things differently over the last few decades, for just as many reasons. But one major difference in big companies today compared to 40 years ago is that today’s giants pay less generously than the giants of the past, especially when it comes to their lowest-paid employees.

There are multiple reasons why big firms historically paid better than smaller ones. Part of it was related to the people who worked there. Bigger companies could attract qualified, sought-after employees who could demand higher wages. And big companies tended to be more efficient than smaller firms, which meant their workers were more productive and therefore better paid.

Bigger firms also seemed to resist too much inequality developing between pay at the top and bottom. That may have been because of unions, social norms, or the belief that equal pay would make employees work harder or stay longer. Whatever the reason, firms couldn’t get away with paying their top employees less — or else they’d leave — so they ended up paying their less-well-paid employees more. That meant the primary beneficiaries of higher pay at big companies were the lowest-paid people who worked there.