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How Abuse of Interns Undercuts Company Success

Monday, 5 Apr 2010 | 10:55 AM ET
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Want a snapshot of everything that's wrong with corporate culture at present?

Try the following two news items—posted the same day in the New York Times last week, and fortuitously juxtaposed on the paper of record's site—for a little perspective.

First up, the Gray Lady reports that there has been significant growth in unpaid internships—so much so that labor commissioners across the country are now examining the phenomenon for evidence that employers are using the schemes to bypass labor laws.

The second item for consideration is a special report into CEO pay, which found that median executive salary packages in 2009 "declined by 13 percent […] to $7.7 million. The average total pay tumbled by 15 percent, to $9.5 million."

We'll deal with the obvious dangers in correlating the two phenomena in a second, but let's first note the (not entirely inappropriate) knee-jerk reaction. The "average" CEO is taking home $9.5 million while their companies are taking advantage of free labor from interns to cut costs.

Now, the caveats: the "average" salary figure is only drawn from the top of the CEO pile. The Times piece notes that the salary report they cite is based on "the pay of 200 chief executives at 199 public companies with revenue of at least $5.78 billion that filed their proxies by March 26. (Only 199 companies are on the list because Motorola has two co-C.E.O.’s.)" Some companies abusing free labor, therefore, are likely only paying their leaders hundreds of thousands of dollars, rather than millions.

Additionally, the piece on internships notes that "[n]o one keeps official count of how many paid and unpaid internships there are," and bases its assertion that the market for unpaid internships has mushroomed largely on anecdotal evidence. However, that includes a tripling of the number of unpaid internships posted on Stanford's job board in the 2009-2010 academic year compared to two years ago, and a 2008 study that found some 83 percent of graduating students had held an internship position prior to graduation—up from just 9 percent in 1992.

If it's no secret that the internship market has exploded in the last couple of decades, and that the number of unpaid intern postings has increased in the last couple of years, it's probably not too much of a stretch to assume that the number of students and recent graduates taking unpaid internships has indeed grown since the onset of the recession. Neither is it too much of a stretch, then, to assume that some of those positions will be with companies where the executive team a) is taking home salaries most workers can only dream about and b) is of an age that they entered the workforce prior to the boom in internships, and is likely very far removed from the difficulties of surviving while making zero dollars. (For a list of reputable internship programs, check out Vault's 2010 Guide to Top Internships.)

The internship started out as a noble idea that benefited both parties: students could gain experience in the workforce while gaining academic credit, and companies got the opportunity to identify and nurture top talent, and gain fresh ideas and perspectives into the bargain. It's increasingly obvious, however, that the concept has morphed into something entirely less wholesome in many cases. The Times claims to have spoken to many students who "said they had held internships that involved noneducational menial work." While that's not a problem per se, "when the jobs are mostly drudgery, regulators say, it is clearly illegal not to pay interns."

Worse than mere illegality, however, is the stunning lack of long-term thinking evident in such an approach.

By choosing to abuse entry-level workers while granting outrageous privilege to top-tier employees, companies are focusing only on the short-term.

In assigning menial work to interns for no pay, companies are in many cases learning nothing more about an intern than the willingness of their parents to support them. And, while they're missing out on a golden opportunity to identify the leaders of tomorrow for want of a few thousand dollars, those same companies are awarding many times that amount to the people who set the institutional culture that permits such behavior. And make no mistake: a company that isn't actively invested in grooming its own talent is one that is undermining its own potential for success in future—actions that hardly deserve any reward at all.

More Executive Strategies on CNBC.com:College Degrees in Most Demand: 2009Colleges That Bring the Highest PaycheckExecutive Career Strategies

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Phil Stott is a staff writer at Vault.com in New York. Originally from Scotland, he has also lived and worked in Japan, South Korea and Eastern Europe. He holds an MA in English Literature and Modern History, and a Masters in Research in Civil Engineering, both from the University of Dundee.

Comments? Send them to executivecareers@cnbc.com

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