Executive Pay – Conservative Principles

Executive pay is a hot button in the culture wars. A pragmatic reaction to any proposals for the government to cap executive pay should not be just a knee-jerk rejection, but one based on ideas other than the status-quo and increasing an unprecedented American divide between the haves and have-less’es, something that is not good for the body politic.

Bonuses or salaries of tens or hundreds of millions of dollars for bankrupting one’s company or quitting and parachuting out of a contract – or even just doing a good job – are not American ideals. No previous generation of Americans ever felt it their due to be paid tens or hundreds of millions of dollars for a good year at the office, on the silver screen or at the ballpark.

Most Americans desire families, kids, educated voters, retirement income, and the ability to get ahead, to hold realizable dreams of running their own lives and companies. Conservatives, Centrists and an increasing number of Liberals want to be able to afford the choice of a parent staying home to raise their children.

Making $20,000 while the CEO is making $50,000,000 means fewer children, fewer of them attending college, no dreams of truly getting ahead, both parents working, and dependency on government for retirement – in short, statist-supporting, big-government-dependent voters. These are not American goals.

They shouldn’t be Conservative goals.

Conservatives need to realize that closing the income gap is not a bad thing, but that closing it by limiting opportunity (i.e someone who never has held a real job arbitrarily capping the top rungs of success) through big-government regulation… IS a bad thing. A Very Bad Thing.

Although America was founded on individual liberty and freedom to pursue one’s happiness according to one’s desires and abilities, reasons both historical and common-sensical exist to support the goal of shrinking the earnings divide. Counter-intuitively and more to the point, doing so will encourage a significant number of Conservative principles, priorities and desires.

Income gap

Because the income gap always rises under Democrats administrations, were the GOP to find a common-sense approach and educate voters as to who is responsible for the growing economic disparity – and who can logically fix it through (mostly) market mechanisms, the GOP stands to gain the most. Another good thing.

Economists know that only the market can react and adjust to society’s needs in any realistic form. This does not, however, preclude a role for government. That role just must rely on the market as its primary mechanism for change. Asking government to limit undesired behavior, or encourage desired behavior is neither socialistic nor anti-American; it’s what laws, morality and norms are all about, things most Americans support.

(For those violently opposed to any government intervention, recall that the rejection by Congress of stronger regulation of Fannie and Freddie, proposed numerous times from 2001 – 2008, led ultimately to the largest financial calamity in decades and the destruction of trillions of dollars of wealth – mostly of those individuals who saved their own money rather than relying on government handouts.)

Thus, a suggestion.

Use the tax code to strongly recommend that companies to pay their highest-earners whatever they want (the Market), but that no person in the company be compensated more than 100X the lowest-earner in the company – including contractors. (All forms of compensation would need to be covered, and all forms of employees or contractors to that company, as well, including overseas contractors, and some way would have to deal with monetizing shares / options; to be serious the ways around it must be removed.)

If someone wants to pay their CEO $50M, fine – then the lowest-paid person would be paid $500,000. Perhaps, instead, the CEO ought to be earning $5M and the lowest-paid employee, $50K. Why is that unreasonable? Why have government limit opportunity rather than expand it?

Wouldn’t you rather have the market work on fairness and pay than leaving it to the Congress? With the exception of this multiplier – all else is left to the market to work out.

Is it a perfect answer? No. Is this a perfect world? No.

Is 100X the best answer? Perhaps not, but it seems a reasonable place to start. How would this limit be enforced? With basically confiscatory taxation of 90% above the multiplier.

Face it – the seriously wealthy helped get us into this mess. They helped – more than you or I – elect the childish Congress that cannot stop spending. They, too, partake of entitlements such as Medicare and Social Security. What principle says they shouldn’t also help us get out of the mess and preclude its recurrence?

What are the principles served in this limited intrusion into the Market? How large are they? Would they be more – or less – distorting to the market than arbitrary pay caps on the producers?

Suppose the highest-earner at a hypothetical company is paid $50,000,000, and that the lowest-earner is paid $20,000, or $10 an hour for 2,000 hours annually; two weeks’ vacation, 50 – 40-hour weeks. And suppose that the company has 5,000 employees.

Is what that person at the top doing with their historically unprecedented earnings as helpful to the overall goals of society as would be the case by raising the earnings of the other 5,000 employees? If that person earned only $2M, raising the earnings of the average employee by $10,000 (assuming the same total payroll payout), would the high-earner really be in a bind? Would raising the salaries of 5,000 people by $10,000 annually not be a good thing for the economy? Maybe the multiplier is 150, meaning the high-earner would make $3M. Has anyone not been able to accomplish their desires by making only $3M annually? Suppose the multiplier is 1,000; would making only $20M severely curtail a lavish lifestyle, and would the additional $6,000 in average employee earnings result in more of the behavior most Americans support?

Are one or two or three mansions and multiple sets of luxury cars and other desires for one person or couple as fruitful to society as thousands of mid-range homes, thousands more college educations, more retirement savings, more travel to broaden and educate families? Is keeping the earnings at the top conducive to larger families and a growing economy and country? Are a dozen luxury autos at $250,000 and up more or less helpful to society than hundreds of regular cars (and mechanics and car salesmen and body shops…)?

If lower and middle-income earners were paid more, would more Moms be able to stay home and raise their children rather than foisting them off to some stranger’s daycare – often subsidized by the taxpayer? The additional money paid to the larger number of workers would increase their purchasing power, grow the economy and increase jobs, as well.

Aren’t these trade-offs most Americans can and should support?

Will the high-earner really be constrained by making only $5M, or $20M instead of $50M? Or $90M? If so, she or he certainly can be paid more, with the lower-earners also earning more. It’s entirely up the market.

By allowing the market to set salaries, but by having a reasonable de-facto limits to the earnings divide, a balance can be struck between the Statists on the Left who want to control everything and the unfettered free-marketers on the Right who, unfortunately have not always shown that a better, more educated voter – and country – is their goal.

Fifty years ago a CEO would have been embarrassed to be paid $182,000,000 dollars in severance. Fifty years ago, before refusing-to-mature Baby Boomers and their adolescent greed ruined everything they touched, shame and embarrassment actually were a societal force for desired behavior.

Boomers have rejected shame and never taught it to their children. Perhaps regulation to push – hard – good behavior, now is necessary.

Do most Americans really think that some people earning tens of millions of dollars while paying their employees just enough to get by with two parents working is a sustainable model in a free society? The ongoing discussion of executive pay would seem to argue that it is not.

Either we use the Market to regulate behavior within what we as a society believe are acceptable limits and norms – or the government will regulate our behavior directly – which always results in disaster.

Or our division of wealth will cause us to look like Brazil or Mexico in a few decades.

About Alex Scipio

About Alex Scipio: Alex moved out of the People's Republic of California to the Free State of Arizona, finally tiring of the lack of the Bill of Rights, the overgrown idiocracy, and the catering to non-Americans & welfare recipients. He still wonders how America got from Truman, Eisenhower, and Daniel Patrick Moynihan to the Liberal and Conservative extremes so badly managing America today. And, yes, islam DOES need to be annihilated. And doing what he can to get folks away from the extremes of political life.
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