Rodney Hide: Cut-price chiefs won't do - we need the best

Elvis Presley gets his pre-Army haircut. Photo / AP

I miss going to the barber. The banter was always first class.

Plus the experience, in a roundabout way, taught me not to be upset or angry over the news that more and more executives are getting paid more than $1 million a year. I only wish there were more of them and that they were paid more than $10 million.

When I was a boy the front of the barber's shop was filled with beautifully presented tobaccos, pipes and cigarettes. The aroma was exquisite.

But the best thing was going through the swing doors to the back room. The floor was black and white tiles. There were three beautifully ornate barber chairs and I can still smell the bay rum oil that was sprayed on following a short-back-and-sides.

Men sat on chairs around the wall waiting their turn. There was no booking a time. You simply turned up and took your place in the queue. Out back was men's talk. No woman went through those swing doors. I just listened intently. And looked.

On the south wall was a large calendar featuring a beautiful girl posing provocatively. The page would be ripped down as each month passed to reveal a new girl. I went every six weeks to get my hair cut. I got to see a new girl every visit.

It was two-and-six for a haircut. The last time I needed a barber it was $15. (Yes, it's been a while since I needed one. It was 2008 in fact).

Two-and-six is 25c. That 25c in today's money is $3.60. So what we pay barbers has quadrupled in real terms. They are no faster, no better, and no more worthy than they were. They do the same job as they have always done.

But there wouldn't be too many barbers left if today we only paid them $3.60. That's because wages have gone up elsewhere in the economy. Those wage increases have been driven by increased productivity which, in turn, is driven by investment in machinery, training and technology.

The barber can now earn more driving a truck, working in a factory, or on a farm than he once could. To keep him cutting hair we have to pay him more to compensate. It's what he can earn elsewhere that determines what we must pay the barber.

In poor countries, barbers do just as good a job but do so for less than 25c. That's because their country is poor. Wages are low. That's why productivity is such a big deal. And productivity is not about working harder and harder. It's about working smarter and smarter, which takes investment in machinery and skills.

What determines what we get paid isn't what newspaper editors think is fair or right. Or what the political process deems appropriate. We get paid what we can earn elsewhere.

Our big companies must compete in the world economy. To succeed we need top people running them. Big companies all around the world should be wanting them - if they don't, our top executives are not good enough. But that means executives must be paid what they can earn elsewhere. And that's a lot of money.

A good executive on $1 million or more should be adding hundreds of millions in value. A not-so-good one could be losing that much.

That's why I want more executives on the big bucks and the big bucks even bigger. That would mean our economy is doing better and we are all being paid more through the resulting increased investment in machines, skills and technology.

Besides, an executive's pay packet doesn't come out of my pocket. I don't have to buy their product or service or invest in their company. Their gain is not my loss. I get to choose where I shop and what I buy. There were two barber shops in town when I was a boy. We had choice. I went to the one with the best calendar.

rodney.hide@hos.co.nz