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Should the US Copy Switzerland and Consider a 'Maximum Wage' Ratio?
Hugh Pickens DOT Com writes "John Sutter writes at CNN that as Swiss citizens vote on November 24 to consider capping executive pay at 12 times what the lowest-paid worker at a company makes in a referendum. Some say the idea of tethering top executive pay to some sort of concrete metric might stop American execs from floating further into the stratosphere. 'Here in America, the land of unequal opportunity, the CEOs of top-500 companies make in a single day about what it takes an average "rank-and-file" worker a year to earn, according to the AFL-CIO, the federation of unions,' writes Sutter. 'Democracy starts to unravel if a few people become wildly, ethereally successful, while the rest of a country struggles.' A $1 million salary worked for American CEOs from the 1930s to 1980s, says Lynn Stout. But CEO pay, including options realized that year, jumped about 875%, to $14.1 million, from 1978 to 2012, according to the Economic Policy Institute. 'What we've got is basically an arms race,' Stout says, 'where the CEOs are competing on pay because they each want to have higher status than the others.' Peter Drucker, the father of business management, famously said the CEO-to-worker salary ratio should not exceed 20:1, which is what existed in the United States in 1965. Beyond that, managers will see an increase in 'resentment and falling morale,' said Drucker. Stout has suggested that the IRS make CEO pay a non-deductible business expense when it's higher than 100 times the minimum wage. 'Limiting CEO pay to 100 times the minimum wage would still allow top execs to be millionaires,' concludes Sutter. 'And here's the best part: If the fat cats wanted a pay increase, maybe the best way for them to get it would be to throw political weight behind a campaign to boost the minimum wage.'"
So the execs will layoff the lowest paid workers and hire other companies in to do the job of those workers.
Or they will split the company and have one company own the other. Low paid workers in the one company and high paid workers in the other.
So many ways around this they will never close all the loopholes.
I know Americans don't want to hear this... but a large gap between rich and poor is BAD for society.
How do the rich get rich? By selling things to the lower and middle classes. They then put that money into economic development... which creates jobs, money that gets spent on more shit ... which goes back to the rich.
In the last 30 years, the rich have openly grabbed everything to themselves... and held down wages for the lower classes. So how do you do that and still get richer... you LEND to the lower classes. Hence the debt apocalypse we've been having.
Like it or not... the solution to all this is to income redistribution. You FORCE the rich to pay tax and put it back in at the middle and bottom - which they then spend on shit. The rich are too greedy and short-sighted to realise that this doesn't jeopardise their position... they get the money back along with development for society, the economy and less societal unrest and crime due to the massive wealth gap.
Socialism is, of course, worker control of the means of production, which is orthogonal to government regulation of pay.
Now the owning classes have learnt that it'll get you richer to milk the fat cows of UK and the USA until they countries have run dry, by which time they can retire somewhere off the Caribbean coast. Is it society's job to curtail this behaviour? Sure, why not. The free market is supposed to be a tool, not a ruler - if it won't do its job, we rework it.
. The free market
does NOT exist.
Yes, I'm left. You have a problem with that?
Bad education and information are what causes democracy to unravel. Not high pay.
Not always. There's been a lot of CEOs lately who:
a) Take a working company
b) Outsource it to India
c) Fire all the workers (they call it "downsizing")
d) Pay themselves a mega-bonus with all the money made in short-term cost savings
e) Set themselves up a monstrous pension plan based on "projected earnings" (which will suck all the profit out of the company for years to come)
f) Move to another company before it all comes crashing down in ruins
No sig today...
How about a law that says movie stars can only make 100 times what the lowest wage guy on the movie set makes? Perhaps recording artists should only make some multiple of what some guy in the studio does? Maybe authors can only make some multiple of what the editors at their publishing houses make?
Does anyone really believe laws like that that would lead to net improvements in those areas, or for society in general? Paging Harrison Bergeron. This way lies madness, folks. As P.J. O'Rourke put it:
Q: What does the "B." in Benoit B. Mandelbrot stand for? A: Benoit B. Mandelbrot
A pay ratio should be the metric for achieving a more egalitarian society, not the means. If we tried to make it the means, corporations would just find loopholes. First they'd hire outside contractors to mop the floors. Then they'd form companies to provide the service of executive management. "The lowest-paid employee at our company makes $1 million, so I can make $20 million!"
What we need is a progressive individual income tax structure in which the top marginal tax rate approaches 100% as income approaches minimum hourly wage * 24 * 365. Close all the investment and offshore accounting loopholes. With this in place, we can completely eliminate all corporate taxes.
. The free market
does NOT exist.
Absolute zero Kelvin doesn't exist either. That doesn't mean that Minnesota isn't colder than Florida.
It is idiotic to claim that there is no difference between free markets and socialism because there are no mathematically perfect markets with infinite sellers, infinite buyers, and zero barriers to entry. There are plenty of markets that are free enough that the advantages (and disadvantages) of free markets are clear.
By this logic then surely overpaid American executives should all be unemployed as they would be replaced by harder working cheaper Chinese bosses? After all American CEOs seem to love cheaper harder-working Chinese peasantry?
Libertarian argument:
Motivate the rich by giving them more money.
Motivate the poor by giving them less.
Therefore the economy works better if poor people have to work like dogs to afford food & all the money saved can be given to billionaires. If the poor moan about this then they're clearly too lazy to start their own multinational company.
Economic debate 2013: Still stuck in the 1800s. Jeez.
By almost any objective measure of standard of living, general happiness, health and well being the USA comes in last when compared to other modern western states.
The USA has more murder, higher income disparity, lower economic mobility, terrible health care, almost non-existent social safety net, uneven education, and we could could go on for a bit here, but you get the idea.
The USA is still an economic powerhouse, but the rewards are going disproportionately to the already wealthy. There are many signs that the USA is heading the wrong way: unreasoning ideology replacing thoughtful policy, laws based on fear not facts, various scandals involving abuse of power by almost all levels of government, and population quite happy to trade false security for their liberty.
Anarchists never rule
+1. What's interesting to these arguments that say "the free market does not exist," is that they propose the solution is to move in the exact opposite direction of the free market: a direction in which the ruling class controls and will use to its own advantage. If, on the off chance, something like this ridiculous 12:1 pay cap thing gets passed, you will see one of the three things happen: 1) creative ways to subvert the law, possibly bringing in unforeseen consequences that impact far more than just the CEO's; 2) companies and the wealth that they generate flee to more prosperous regions; 3) a combination of both.
But alas, people think that laws can just magically make everything better and people more "equal," by whatever definition they arbitrarily choose. Equality can only ever be objectively defined as equality of opportunity, not equality of distribution. After all, the only way to achieve equality of distribution is via coercively taking from those who have accumulated their wealth via mutually-beneficial exchanges on the free market[1]. There is nothing equal about taking from one and giving to the other. Furthermore, what exactly is the problem with a CEO making 500x the rate of the lowest (or even median) paid worker? Inherently, nothing. What matters is the wealth and progression of the middle class and the freedom to move freely through the classes, based on ones' abilities and desires[2]. I would much rather live in a world with a strong middle class where the CEO's make 1500x what the average worker makes than a world where the middle class barely squeaks by while the CEO's only make 20x what the average worker makes.
Forbidding people from signing contracts that both parties deem as mutually beneficial is wrong and destructive to the economy. After all, it is not the CEO's who own corporations, but the shareholders. As such, it is the shareholders who ultimately decide upon the pay of the CEO. If the owners of a company decide that it is in the company's best interest to entice the top executives with $x, there is absolutely nothing wrong with that. Contrary to popular belief, the only way this is possible in the long run, is if the executive actually brings that worth to the corporation. These sorts of laws will *not* bring up the wage of the workers just so that the executives can be paid more; after all, the most an employee can be paid without the company losing money is the discounted marginal value product that he or she brings to the company.
[1] There are, of course, many who make their wealth by rigging the system to keep competition out or via other mechanisms such as exclusive rights or privileges to government contracts, etc. Wealth obtained this way is illegitimate. It is not mutually beneficial, such as those exchanges that occur on the free market.
[2] Individuals' abilities tend to vary during their lifetime. There is nothing wrong with a young, unskilled worker not making as much as a man or woman in the prime years of their earning power. This is the primary source of the disparity between incomes.
Or perhaps everybody from the dock workers to those who stock the shelves full of goods have to be paid twice as much there as they do in the USA.
You're just bound and determined to make it the fault of those greedy greedy workers and their million dollar mansions, aren't you.
I say again, bullshit. One of the most aggressive, most pervasive, and most powerful unions in the United States is the International Longshoreman Association. Those would be the people who handle every piece of freight that enters the US. Your average longshoreman (not dockworker; dockworkers are the people who run pallet jacks on and off of trucks at loading docks) makes $44/hr.
A once powerful union, the Teamsters Union, moves all that freight across the country. These days only about 16% of truck drivers are Teamsters, but truck drivers in general still manage to average $18/hr.
The price of expensive, even very expensive shipping and handling labor is already factored in to the price of every piece of plastic crap sitting on Walmart's shelves, labor that costs much more than Australia's minimum wage. That plastic crap is still cheap. Famously cheap.
Repeating your religious beliefs over and over again does not make them so.
Now, the long lines in more socialistic economies to buy anything at all not locally produced- they do exist. Try buying a large screen TV in Venezuela this coming January. You might be able to, if you're a member of the right Party.
US here... I waited in line to buy a ps4, what's your point?
There is nothing equal about taking from one and giving to the other. (...) What matters is the wealth and progression of the middle class and the freedom to move freely through the classes, based on ones' abilities and desires.
But reality is more messy than that, there are all sorts of people whose abilities and skills (ranked on how useful or desired by others) are a poor match for today's society. Having a system that only rewards those who fit in best is a recipe for disaster and dehumanizing/neglecting those that don't fit in / are less fit. Diversity is longterm strength, but more importantly we have the capability for rational compassion and care for others and the wealth to make supporting everyone a minor burden at worst. Anyone who has experience with family who cannot succeed financially, but brings them great joy otherwise could tell you how important compassion and care for others is for their entire family.
Setting up a system that takes away the fears and worries about living with a decent quality of life: food, shelter, health care, meaningful work, etc brings unimaginable, but generally indirect (until something terrible happens directly to you or your family), benefits to all. Think reduced crime, more opportunity for someone to make the thing you've always wanted, etc. In a perfect world, this would be common sense and giving and support of others would be voluntary, but (especially in societies that emphasize the rightness of owning and hording regardless of the impact on others) the enforcing of distribution of wealth is a useful but blunt tool.
In addition, in this particular example, capping pay has a direct benefit to the companies: the last sort of person we want running a large business/organization that is designed to outlast their tenure is someone motivated strongly by financial incentives. That sort of leader is a real risk to the organization as they will always make mistakes in their favour rather than sacrifice for the organization.
Complexity Happens
Hah, hah. Very funny. Shareholders have so little rights these days and boards are stacked with the CEO's buddies in ways that make it such that CEO pay is almost impossible for shareholders to control. Do you really think it was in shareholders' interest for the former CEO of Home Depot to get a $200M pay-off?
The real "Libtards" are the Libertarians!
Well, there is one additional factor generally necessary to be an eight-figure-income CEO, called "networking" (or "nepotism" in older sources). If you are the child of an eight-figure-salary CEO, so you go to the prestigious private schools with other eight-figure-salary CEO's children, then join the ivy league frat with the billionaires' kids, you'll be handed at least a six- or seven-figure management position straight out of school, and be allowed to hang out at the country club with the older oligarchs. Then, once you've demonstrated a better than, say, seventy percent probability that you're not such a complete fuckup that you'll destroy an entire company before the top shareholders can grab their loot, you'll be handed the seven- to eight-figure salary position. The limited "networking" social circle of the oligarchy keeps the common riffraff of penis pill scammers from directly competing against the prior generation oligarchs' kids, despite being equally capable for the job.
Forbidding people from signing contracts that both parties deem as mutually beneficial is wrong and destructive to the economy.
Right. Because the unemployed guy with a mortgage and family; he's on an equal footing when negotiating his wage with Walmart.
If he doesn't like the terms walmart offers, he can gamble that he'll find something better before the bank takes his home.
Seriously, to talk of equals signing mutally agreeable contracts is bullshit. These people are in a "take what they can get" position.
There is nothing wrong with a young, unskilled worker not making as much as a man or woman in the prime years of their earning power.
So are you in favor of a rising minimum wage with age then? So that every "man or woman in the prime years of their earning power" are making more than the high school kid dipping fries after school?
Because right now, they are not.
Funny enough the countries with quite a bit of socialism such as the Nordic countries have the most social mobility with America coming in second worst after the UK when it comes to be able to move into a different social economic class as your parents. http://en.wikipedia.org/wiki/Social_mobility#Country_comparison
Seems the best move is to take the best of the various isms instead of pretending that one ism is far superiour.
https://en.wikipedia.org/wiki/Inverted_totalitarianism
The fact that the shareholders still hold shares indicates that the majority of them did, in fact, not care enough to move their investments elsewhere. Or if they did, others thought Home Depot was a good opportunity, in spite of the $200M pay off. The point is, bad management kills organizations. Can a corporation make ridiculous decisions? Of course. But the market is not very forgiving; too much of this and the company will go under; therefore, it is in the corporation's best interest to not do things like this. The trouble is, people have a tendency of looking at a corporation in a vacuum, devoid of other investment opportunities. It is a very truncated perspective.
The bulk of the shareholders for most corporations are not individuals. They are either part of a small group of cronies and/or relatives or the shares are held in large blocks by investment funds and similar institutions. And almost never is the actual determination of executive compensation determined directly by this skewed form of democracy. At best there's a compensation committee.
There's no direct linear correlation between compensation and performance. Anything but, considering that some people rake in more for failure than most of us will receive in a lifetime of success. In any event, once you reach a certain level, you're playing for points, not essential income. So if there's an even-handed set of rules limiting upsides, it just adds a certain extra challenge to the game, that's all.
I have nothing personal against becoming obscenely wealthy (donations gladly accepted). As long as it isn't at the expense of others. But when some people's incomes shoot exponentially higher while the majority see a net loss through multiple boom-and-bust cycles, then something's wrong.
The objective is to tie their pay to the pay of everyone else in the company. The ultimate goal is to harness their personal greed to raise pay for everyone else, preferably to pull it back in line with the growth of the GDP.
Consider me dumb, but how on Earth will capping executive pay on a scale of an entire country lead to increased poverty? You think that people who can live with earning a bit less than their current excesses will magically perform worse? That someone who doesn't earn millions USD per year can't lead a large multinational corporation? The heck? Do you really think that people's performance is solely determined by their pay? Really? That's your rational position?
This is not about economic growth and got nothing to do with it. It's all about people in the top positions earning commensurately with the human nature. Just because you're a CEO doesn't magically make you perform 3+ orders of magnitude better than the rest of us.
A successful API design takes a mixture of software design and pedagogy.
Just because I agreed to a contract, doesn't mean that I like it or think it's fair. What if I'm indirectly forced into it because I have no other options. To be fair is to be just and and unfair compensation is unjust. There is not issue with making all the money you want, until it starts to hurt others. What if I was a billionaire and started buying up all of the farms, then I refused to let people buy food from me? My farms! Let the people starve.
Too much of a good thing can be bad. If it can't come to a natural balance on its own, then it needs to be forced into an artificial balance or it needs to be destroyed.
Do CEOs labor 50 or even 12 times harder than janitors?
No, in the end it is telling companies that they must pay all employees closer to the average amount. Companies may freely choose to raise the average instead of limiting the top outliers.
Companies succeed or fail as an organism and rely on the performance of every part.
Your philosophy is like saying the brain deserves 50 times more calories than the hands because it's smart enough to negotiate a better salary from the stomach. And that this continues to be morally correct even when the fingers are starving and falling off.
It doesn't matter how much harder they work. If the janitors want to make the same wage, they should get the same jobs.
Obviously janitors can't get those jobs. Not only because of accidents of birth intelligence wise, but accidents of birth socially wise. Most execs had wealth parents, most janitors had working class parents. The old-boy network, or the ivy-league network counts for much more than ability does. That's no reason to multiply the advantages of those that were born lucky, by giving them pay out of all proportion to the work they do.