Forum Post: 100-to-1: A simple way to rebalance income inequality??
Posted 12 years ago on Oct. 4, 2011, 11:25 p.m. EST by fawkesian
(17)
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What about a single law mandating that no one at a company could make more than 100x their lowest paid employee? Any excess profit would either have to be reinvested in the company (new jobs, equipment, etc.) or returned to shareholders. If a CEO gets 100 stock options, then all employees at the company must also get at least 1 share each. Any income that exceeds the 100-to-1 ratio is taxed at 100%.
Obviously, this is still pretty extreme to allow a CEO to make 100 times their lowest paid employee, but at a time when a single hedge fund manager can be paid more than $5 BILLION in one year (almost 1 million times an annual minimum wage job!), moving this back to 100-to-1 would be a major course correction. Is one person really worth 1 million other people?!!?
If minimum wage is ~$10,000/yr. a 100-to-1 ratio allows a CEO to be paid $1 million per year. If a CEO wants to be paid $10 million, then they better be able to improve the company to a point where the lowest paid employee gets $100,000 per year. Otherwise, tough luck CEO. Want $100 million for the CEO? Can you pay everyone at the company $1 million?!! I thought not.
Reasons this could work are as follows:
1) Simplicity: 100-to-1 is even easy to chant
2) Immune to the "big government" charge, since companies have the choice to reward their workers/shareholders directly rather than let excessive income go to the government.
3) Would not hurt small business (do not make more than 100x their employees).
4) Easily regulated: each company ID is simply matched for highest and lowest paid employee and any income in excess of 100-to-1 is taxed at 100%.
5) Would help limit the corporate robbery that is currently ongoing.
6) Yields jobs and income to the middle class that will spur the economy through renewed consumer spending. Corporations currently sitting on tons of excess cash, but not hiring. Either return these funds to employees, shareholders or the government, your choice.
7) Could also be applied on an hourly basis to contract workers (otherwise companies will simply eliminate all their low paid staff and hire temps).
8) Allows competition to continue as successful companies would be attractive for the best workers.
9) Finally recognizes the human capital (labor) that helps drive capitalism.
10) Other slogans:
"Real patriots don't exploit their employees"
"A real leader lifts their employees up rather than stepping on their heads"
11) Can "Take our country back" to a time when CEOs actually supported their employees rather than exploited them. CEO pay was on average less than 40-to-1 until 1980 (when it began to rise dramatically to the current 220-to-1 level).
12) Excessive personal greed of corporate officers not only destroys their companies, but it is destroying the economy as a whole.
Not all of peoples money is paid as a salary/wage. What about capital gains? What about income earned from a sole proprietorship? Must the owner of a business close shop for the year because he has reached his legal earning limit?
Also, how do you count perks like jets and limos and timeshares in the Caribbean? Who will pour over the company records and cross check it with records of financial transactions to make sure that such non-cash forms of renumeration are truthfully reported?
How about trying to get more information out there about companies with the worst executive-worker pay disparities, and boycotting those, and "buycotting" those with more fair pay distributions. If I was going to push for something, it would be making such information readily available to the consumer.
Owner doesn't have to close shop, just has to start paying employees more if he wants to earn more. Rules of the game. Do you really think a 100-to-1 ratio is too much of a limitation? I have a small business and I have have done just fine staying at less than 5 times more than my lowest paid employee. Not because I get paid little, but I keep the best people by raising their wages along with mine.
Yeah true, but it would still only apply to businesses, not individuals like investors, and the perks thing would be really hard to control, especially for the real fat cats. Perhaps with clever wording a law could be crafted.
A different approach would be to have product packaging include a histogram (frequency distribution) that shows pay distribution in a company (similar to nutrition labeling), which would allow consumers to use that as a factor in deciding where to take their business.
I like the idea of product labeling. Very nice. Agreed that individuals would not be as limited by this, but I think that is fine. To really amass a great amount of money, you really need a lot of people working for you. Similar to how a dictator enriches themself so much by robbing the productivity of a whole country for themself. A current CEO getting paid $100 million is following a similar path. Agreed that perks thing would be hard to control, but I hope corporate jets aren't as widespread as it is made to sound.
How would you feel about posting the pay grades of your employees on your place of business/website? I could see it being awkward for a small business, but it would be fantastic if we saw what Amazon pays its warehouse employees every time we ordered something. Maybe brick and mortar bookstores would make a comeback? But I digress..
Ratio might be enough without revealing everyone's individual salary.
Also they should have to say what % of their expenses are outsourced (and beyond the prying eyes of such legislation). I bet we could get some tea partiers on board with the outsourcing thing (although not the rest of it).
It will limit CEO pay, but not increase worker pay. When will we all realize that vilifying the 1% and punishing them will in NO way improve the individual workers situation. At all. Maybe it will make you feel better, but is that virtuous? Do any of us care whats right? Right is not defined by equal discomfort and pain. Time for bed. I have a job and strive to stay in the 1% while you'll let me.
Doesn't matter if worker pay doesn't increase, excess will have to go to building the company (jobs) or shareholders, who will increase consumer spending more broadly than 1 person rewarding himself as much as 1 million other people combined. Is one person worth one million other people??
Moron. CEOs don't reward themselves. Stockholders reward them. A CEO does not set his own salary. The individual owners of the company do. And the value that a good CEO brings to a company is easily worth one million or one-hundred million dollars
Often decided by boards of directors which are insiders' clubs.
Nope. Executive compensation has to be decided by external directors. Usually these people are academics and semi-retired businesspeople. Their position on the board is always approved by a general vote of the shareholders.
Yes, the members of the board are often decided by a general shareholder vote, but executive compensation is not always decided by general shareholder vote. Do you think there should be a law that shareholders get to vote on any executive raise? I would agree that is a good idea.
Robber baron J. P. Morgan insisted that making 20 times a worker's wage was enough for the top guy. This shows how far this country has drifted.
What about actors, musicians, sports figures, authors, directors etc...
Good point about solitary workers. But for many to do their work, they still require a group. For example, an actor can only be paid 100x the price of the lighting person, the camerman, etc. who works on their movie. A sports figure can only be paid 100x the price of the person who runs the concession stand at their stadium. A musician 100x their roadies' salary. I am sure their would be some truly solitary workers (artists, authors, some software programmers), but they would probably be few and far between.
What about an inventor?
For an inventor to make money, they usually have to build a product. That requires workers and a company. As the inventor they certainly deserve a rich reward, but 100-to-1 still allows for some pretty serious reward. The inventor that simply conceives themselves and then sells to another company may be immune to the 100-to-1, but I can't imagine that would be a common occurrence.
What about a high priced prostitute?
You're right, this law would probably cause a stampede of people into prostitution to proclaim their "freedom" and "take their country back".
Yea but competition will bring down the price- pretty nice.
And who will buy the yacht that the workers are slaving to make? Once govt steals the personal property of even ONE person, EVERYBODY'S personal property is in danger. Unless you want the govt to suddenly say your work is worth $.50/hr, or some ridiculous rate that WON'T pay your bills, then BACK OFF what someone else's pay might be.
Govt is not stealing the income, just forcing the company to pay its employees. Government doesn't even have to be involved, aside from setting the rules of the game. People who make 1 million times their lowest workers' salary are stealing from their employees.
What legal proof is there that making a certain amount of money is ACTUALLY stealing from anyone?
No current legal proof, just moral proof. Is one person's effort really worth one million other people? Keep in mind we are not talking about unemployed freeloaders (welfare) we are talking about a company's own employees. If you are really worth one million of your own employees, you are either a deity or you are hiring some idiots. I have a small business, and I have done just fine while limiting myself to only 5 times my lowest paid employee. You can keep the best people by making sure their effort is recognized.
'Current legal proof' - yes, it may be unethical, but when we start talking about making ethics directly into law, we're talking about Taliban-type theocracy - where a council of religious scholars trumps the courts at will. Don't forget that they still consider stoning and amputation as legitimate punishments. I admire your limit of 5x the employees' pay, but I don't think you have the ability to demand 1000x their pay - it's simply not possible. When we consider the big CEOs pay, it's only a small fraction of the company's profit.
Ah, but there are plenty of CEOs paid 10 million dollars, which would be 1000x their own minimum wage employees (10,000 per year). For the record, I am not talking about religious morality, just common sense morality not to exploit your own employees to an outrageous level. The CEOs are not "demanding" 1000x their employees pay, but yet they are putting it in their own pocket somehow. Wasn't always this way. CEO pay was much lower until 1980 (less than 50 times lowest paid employee). The last 30 years have been the return of robber-barons.
No.
While some executive compensation is excessive, you have to understand the free market for labor. Stockholders CHOOSE to pay the CEO exorbitant amounts for a reason. High-level executives usually spend their formative years in consulting firms where they learn to understand business strategy. All while in a pressure-cooker type environment. Then, they get hired as low-level executives where they are forced to prove their business acumen in make-it-or-break-it situations. If they are able to add substantial value to the business, they may be hired as a high-level executive at a smaller corporation. Only through continuous success improving--and often saving--businesses can they be hired as a big-time CEO. They can demand huge wages because they have a track record of effectiveness at business leadership.
It isn't easy being a CEO. Good CEOs are hard to come by (just look at Hewlett Packard). When a company finally finds one who can add substantial value to the company and be an effective leader, the stockholders are more than willing to pay said CEO large sums of money. If the stockholders didn't, the CEO wouldn't work for them.
Europe and Asia are working on even tighter regulations, so soon CEOs wanting more will just have to choose Somalia or somewhere equivalent.
That's all well-and-good, but the best corporate CEOs would then go to Europe and Asia. There is a reason that shareholders agree to pay them so much- they are good at managing large companies.
I can assure you that if I owned 40% of Bank of America I wouldn't have any problem paying someone 5 million a year to run it.
I would be for this.