What would you be rewarded for?

One of the most valuable economic lessons I learned in the past few years relates to how rewards (financial and other benefits) are distributed within a normal, properly structured and well-functioning economic system or its sub-systems (business organizations in particular). While reviewing an engagement letter at a leading professional services firm, I came across a statement to the effect that the quantum of fees for the exercise is a function of the amount of time (or level of effort), level of skill, degree of responsibility and, of course (unwritten) the risks involved in executing the project.

As I thought further on this, it became clearer that within organizations: people get rewarded in varying proportions according to their contribution of time and skill. Besides, rewards are amplified by the level of responsibility and a person’s propensity to assume the risks of a business. On the first level, most workers in a traditional venture simply contribute their time: from farming to manufacturing and then to basic services. Hence, in these settings, hard work or level of effort is measured largely by the amount of time a person puts in.

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The lower echelons of the public service in most countries still follow this rule: a worker only needs to be at the right place (or at least appear to be there) for the right length of time to earn his or her pay. Yes, such individuals may possess some skills, but the possession or deployment of those skills is rarely the basis for employment, compensation, or retention. In the modern economy which has gravitated more towards knowledge work, and where many services now require a significant input of knowledge and skill, many workers now have to contribute their skill in time with time being a mere measure of the individual’s contribution.

At the level above mere ‘time servers’ or semi-skilled workers in the category of workers who are engaged and rewarded primarily for the skills they possess and are expected to exercise in pursuit of a venture’s commercial goals. Not to mix things up, however, mere possession of degrees or certificates does not make a person skilful. At best, it means the individual is knowledgeable. Skilled persons have their minds and hands trained to make a specific contribution to the completion of certain tasks or initiatives and or production of certain outputs.

Now unemployment is highest among unskilled workers or mere ‘timeservers’ because, at that lowest level, the supply of labour far outstrips effective demand. In the market for skilled workers, the demand-supply equation varies from one sector to another and over time.

Generally, however, the more skilful a person becomes, the higher the likelihood for productive engagement (either as an employee or in self-employment). Also, the higher the skill level, and the more in-demand a person’s skill set, the higher the rewards. Again, to be clear, we can separate three categories of skills: technical, social, and conceptual skills. Technical skills relate to the content, process and tools of work, social skills relate to working with others, while conceptual skills relate to a person’s mastery of a business and its operating environment.

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Above the level of skills is the layer of workers who are rewarded for taking responsibility for the work of skilful individuals and teams. These are often business unit and functional area managers. As an employee, this is about the zenith of paid employment. A man or woman aspires to become a general manager, director, and everything that lies between. Some chief executives also fall in this category with the distinction that every chief executive either directly or indirectly assumes a measure of the business risks of a venture.

Within the larger economic system, the highest rewards (and of course highest possible losses) accrue to those who not only assume responsibility but who bear the risk of a business, regardless of their level of skill or the quantum of time they expend on the venture or corporation. While a few large-scale entrepreneurs readily come to mind, the reality is that entrepreneurs as a group (including the unseen and unheard thousands of private business owners) have been behind the rapid transformation of the Nigeria economy in the past thirty years. In the media space, for example, many skilled workers and responsible mangers of the 1990s are today’s leading lights of print and electronic media franchises. There are also plenty of examples of financial and professional services.

Outside of the privilege economy driven by social connections and fuelled by political patronage, the highway to a person’s economic security will not come from merely selling time. And selling skills may also not be enough. To be safe, a person will need to be in a position of responsibility for results and be willing to assume a decent level of risk.

Finally, while NOT everyone is cut out to be an entrepreneur, if one must avoid a highly uncertain future, then it is critical to learn to assume some level of responsibility and risk in one’s venture or with one’s resources. In an environment with double-digit inflation, seeking to avoid both investment and business risk virtually guarantees a certain outcome with potentially unpleasant consequences.

David Adeoye, CFA