A powerful social science theory, much advanced by Robert Frank of Cornell, provides a strong rationale for setting a ceiling on the incomes of the executives of all corporations that receive public loans, capital injections, or some other favor from tax payers. (Surprisingly many, by the way, if you include specially tailored tax loopholes, credit below the market rates, export assistance, and so on). Before I can lay out what the theory of relative deprivation suggests the next Congress and White House should do in this department, a few words on how we got executives who are paid scores of millions in the first place.
You may well say that the astronomical pay checks -- supplemented by bonuses, stock options, and all kinds of other goodies from executive jets to suites in five star hotels -- simply reflect unfettered greed and the fact that, at least until recently, most corporate boards approved whatever pay schedules their executives put in front of them. (These boards included many of the executives' friends and retirees keen to collect hefty fees for attending an occasional meeting and voting yes.)
All this is true, but do not underestimate the role of Michael Jensen and his colleagues at the Harvard Business School. Professor Jensen was all the rage when I was teaching at what is called "The B School," on the Boston side of Harvard. He was known for his die-hard support of the free market, and his arguments that executives were underpaid. He held that given that executives generate billions in wealth for the shareholders of their corporations, to reward executives for their efforts, their income should rise as the market value of the company rises. Even if they just got a few percentages of the new wealth, Jensen argued, their compensation should have been much higher than it was at the time. No wonder he was the darling of the CEOs who visited the Harvard Business School with great frequency. They paid no mind, and still don't, to Jensen's argument that they should also pay "big penalties for poor performance."
Also, missing in Jensen's and his associates' proposal is any explanation of what, say, an additional million bucks would buy from an executive who is already making twenty. Because I was a member of a delegation that included CEOs, I got to spend several days with the CEOs of Protector and Gamble and of Boeing, and I met some others. I found them extremely hard working people. They worked long days, often taking work home, and traveled constantly from one plant to another, from one meeting to another, with little rest in-between. I cannot imagine that anything could make them work even harder -or, for that matter, that their business would benefit if they took even fewer times out. Nor can I figure out what one would buy--with, say, that last million dollars. An eighth house? Another sports car you have no time to drive?
The answer takes us to Frank and the theory of relative deprivation. Most CEOs use their compensation figures mainly as a measurement of prestige, a statement of their standing compared to other CEOs. They are keen to make more than the next guy or doll. (Indeed, this is the reason European executives, who on average make much less than Americans ones, are just as content as American ones, because their reference group are other European executives.)
A cap on executive compensation would not only save millions for the financially strapped corporations-- and be fair to the tax payers who help these corporations stay afloat-- but would also provide the executives with a new reference point. Anyone who makes the max allowed will have made it. No more need to try to outdo the other, money-wise. Such a ceiling would leave the CEOs free to do what is best for their corporations, the economy, and families-- rather than focus on ways to jack up the price of their stock each quarter.
Micro-blogging: Brother, can you spare a dime?
The executives of Goldman-Sachs just announced that they will forgo their bonuses this year and will do with a "mere" $600,000 salary. Given their performances this year, one wonders why they were entitled to bonuses in the first place. Anyhow, if you are worried about how they will able to do on this meager income, perhaps you could send them a Christmas food basket...
Amitai Etzioni is a University Professor at The George Washington University and author of The Moral Dimension (Free Press, 1988). To contact him, write comnet@gwu.edu. www.securityfirstbook.com
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Look at GW as an example.
All these people are greed-driv
Let companies pay what they want. Leave it to the stockholde
There would still be an incentive to excel, but if you based the percentage
I think a percentage
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CEO's at least run companies that increase chareholde
Athletes only make money for themselves (and their sponsors if they are successful
What did rap stars and movie stars ever do for me? a ceo at least made me money if my stock went up because of better earnings !!
I agree there should not be a cap per se, they just should not be allowed to make more than 30 the salary of the median employee and more than 100 times then lowest paid employee.
However, shareholde
Sheep.
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five times the lowest paid worker. Congressma
the labor force, most execs earned 25 times the lowest paid worker. The multiplier now is in
the neighborho
for a major corporatio
essence a circle jerk, she burst out laughing and said, "Yes, that's pretty much it".
Now, if you argue that this raises taxes on the working, I would disagree. There should be a credit for working people. To pay for the shortfall in revenue, close the damn loopholes every K Street lobbyist has created for their clients. Corporate taxes in America, on paper, are one of the highest in the first world. Reality says otherwise.
Why would any CEO continue to work for the year once they have earned the max permitted? Why not knock off in Spring and come back next year? Or go to work for another company and make the max all over again? Who gets this extra pay we are stealing from the execs? Big government
How about we eliminate all government handouts across the board? No bailouts, no corporate welfare, no individual welfare, no food stamps, no medicare, no medicaid, no subsidies, no tariffs... Let each industry and business rise and fall on its own merits and stop trying to protect jobs and stop interferri
What you describe is an ideal capitalism
Capitalism
Stop fantasizin
Of course, by the time caps work their way through our legal system, the Rubes will have forgotten about this.
Because it would turn hundreds of years of law on its head. The supreme court will take a look at it and decide in fifteen minutes flat that the government has no constituti
"Justify to me why the excutive needs to make five hundred times the amount of a entry level worker."
The average executive makes probably $150,000 a year. Members of the management team of most publicly traded companies make about $200,000-$
In any case, what clause of the US constituti