Reflections on salted peanuts: The NKF saga, public outcry, and flawed reasoning supporting astronomical salaries

I have always been fascinated with peanuts and those interesting views about peanuts. This post is thus dedicated to the analysis of these lovely nuts...

First, there is an influential school of thought that says that CEOs of all multi-million dollar organizations should be paid lots and lots of money. Proponents of this school of thought often attempt to boost their arguments in two steps. Firstly, they will assume that all organizations involve a similar degree of managerial complexity simply because they all involve 'multi-million dollars'. Secondly, they will assume that pay packages come in two and only two discrete quantities - that is, one either gets paid the package with peanuts, or you get paid that package with gold bars. With this reasoning, they then claim that we cannot pay talented people peanuts (which I do agree) and so we need to pay them gold bars (which I do not agree). Thus they present this seemingly convincing argument by comparing two opposite extremes, saying that if one extreme position is untenable, then it automatically means that the other extreme position is good. This argument is fallacious, and ignores the fact that there can be different pay scales which can be finely calibrated to strike a balance between a range of priorities. In the following paragraphs, I will proceed to further challenge this influential school of thought.

On the issue of managerial complexity, proponents of the above school of thought usually invoke two examples: one from politics and the other from the business world. The political example says that CEOs of charity organizations are not very different from government Ministers, and since Ministers are highly paid, therefore CEOs of charity organizations should similarly be highly paid. I find this example to be inadequate, mainly because I feel that a Minister's job is so much more difficult than the job of a CEO of a charity organization - the responsibilities are much greater, and the entire nation's well-being is at stake.

The business example says that CEOs of top MNCs are paid the same amount or more, so CEOs of charity organizations should be paid similarly. Again, this example is not adequate because it treats the environment surrounding the two kinds of organizations as roughly the same. I feel that the environment surrounding a business organization is very different from the environment surrounding a charity organization. Firstly, a business environment is so much more volatile, risky, and competitive; a non-profit environment is just the reverse. Secondly, in order to survive, business organizations need to provide goods or services which people will need or want, and then persuade people to pay for them; and that persuasion is not easy. Charity organizations, on the other hand, obtain money through a rather different logic: they appeal to the kindness and goodwill of members of the public. And this is much easier, I think, because Singaporeans are quite compassionate. :) Business organizations, operating in a hypercompetitive and volatile environment, have a more difficult time since they have to constantly innovate and keep up with their powerful competitors and come up with new products that people will want to pay for. This imposes challenges on the managerial teams that are far greater than those faced by their counterparts at the charity organizations operating in relatively more stable environment.

Thus, I feel that the argument that bosses and managers of business organizations deserve their extremely high salaries is a strong one, while the argument that bosses and managers at charity organizations deserve extremely high salaries is a weak one, even though these two arguments look very similar on the surface. I think for charity organizations, reasonably high salaries are acceptable but astronomical salaries are not. My conclusion stems partly from my personal view that charity organizations are guardians and aggregators of the public's money, which means that what is needed is not extraordinary talent but only ordinary competence and honesty. I am not saying that NKF is not honest; it is, but what I'm saying is that there is no need to hire an extraordinary supertalent to manage NKF. Someone who is ordinarily competent and honest would do (for example, Heavenly Sword...hehe, just kidding) :) I think as long as Singapore remains a compassionate society, the charity organizations will continue to receive the inflow of cash (although I'm not sure what's going to happen to NKF from now onwards). My impression is that the source of the cash inflow lies not so much in the extraordinary talent of the CEOs, but in the compassion of the societies that they are appealing to. This also means that the view that the CEO somehow magically and single-handedly 'made' a particular charity organization a multi-million dollar organization is flawed.

Finally, I would highlight some interesting observations that I have noticed. Many people have cancelled their monthly donations to NKF, and many more are thinking of doing so. Just within my social circle, at least 5 people have cancelled or are going to do so. I personally feel that they should not cancel, but then, hey, this is their hard-earned money, so who am I to say anything? They feel that if $600K is peanuts, then what they are donating must be even more insignificant than peanuts - very much like the salt on the peanuts! And since the amount is going to be insignificant for NKF anyway but nonetheless significant for themselves and their families, they might as well keep the money. I can fully understand this feeling: it's like a friend coming to borrow or rather, ask for money from you when you are already struggling to make ends meet. You help him out of compassion because he tells you that every dollar counts, and then one day you find out that his living standard is actually much higher than yours. How would you feel?

At this point, I do not know how to end this post for once - because on this occasion my emotions are involved. In fact, there would be nothing worth discussing if this issue were only a matter of business or economic analysis (contra Mr Brown, Oikono, and a few others). It is precisely because this issue involves multiple dimensions that the discussions became so extensive. The quick dismissal of that 'focus on the high pay' issue (saying that this is not the main issue or a big issue) is far too hasty, in my opinion. It should be a big issue in this case, and while it may not be the main issue, I certainly feel that it is one of the main issues. Lastly, I think that this issue can be made bigger or smaller by the people, so the assumption that its bigness or smallness is an inherent quality of it is wrong. If the public makes it a big issue, there must be a reason - a reason involving what is morally ideal or not ideal, rather than what is legally allowed or not allowed, or what is informed or not informed by business logic.

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Updates

(1) Other related articles not already linked: Diverse opinions accessible from Tomorrow.sg. Check out also the interesting article on 'charitable gamblers' at Ivan's Chimera, the thought-provoking post at A Life Uncommon, and MercerMachine's funny cartoons.

(2) Host of NKF Cancer Shows, Mr Cao Qi Tai, annoyed quite a number of people with his closing remark made in the final show - something along the lines of "You can forget the donation hotline number after tonight, but I won't" (in Mandarin/my translation & interpretation; 14th July 2005).

(3) I salute Ms Susan Long, the great journalist from The Straits Times, for her professionalism. Well done! And I think that SPH has been fair and comprehensive in its reporting of this event - especially the ST articles on 14th & 15th July.

(4) Excellent quote 1: "You need to know whom you're donating to, how this money is going to be used, and have the assurance that the money will be put to a good and appropriate use." - Dr Vivian Balakrishnan, Minister for Community Development, Youth & Sports (ST, 15th July)

(5) Excellent quote 2: "NKF is an organization that has been built with public donations. In a way, therefore, the public are the moral owners of NKF...So the public have expectations on transparency and how things should be done." - Dr Balaji Sadasivan, Senior Minister of State for Health (ST, 15th July)

(6) Excellent quotes 1 and 2 show that some bloggers' attempts to 'play devil's advocate' are misguided (re Mr Brown, Oikono, and others who invoke what I would call the 'business school argument').