Just as timely for a discussion of pay gap between executives and minimum-wage workers.
http://www.nytimes.com/2014/04/13/business/executive-pay-invasion-of-the-supersalaries.html?ref=business&_r=0
This is a short excerpt:
The current system of executive compensation, with its emphasis on performance, can theoretically constrain pay, but in practice it has not stopped companies from paying their top executives more and more. The median compensation of a chief executive in 2013 was $13.9 million, up 9 percent from 2012, according the Equilar 100 C.E.O. Pay Study, conducted for The New York Times. The 100 C.E.O.s in the survey took home a combined $1.5 billion last year, a slight rise from 2012. And the pay-for-performance metrics — particularly the idea of paying executives with stock to align their interests with shareholders — may even have amplified that trend. In some ways, the corporate meritocrat has become a new class of aristocrat.
Economists have long known that high executive pay has contributed to the widening gap between the very rich and everyone else. But the role of executive compensation may be far larger than previously realized. In “Capital in the 21st Century,” (Belknap Press), a new best seller that is the talk of economics circles, Thomas Piketty of the Paris School of Economics makes a staggering observation. His numbers show that two-thirds of the increase in American income inequality over the last four decades can be attributed to a steep rise in wages among the highest earners in society. This, of course, means people like the C.E.O.s in the Equilar survey, but also includes a broader class of highly paid executives. Mr. Piketty calls them “supermanagers” earning “supersalaries.” “The system is pretty much out of control in many ways,” he said in an interview.
It continues:
In 2010, as part of the Dodd-Frank Act, Congress passed a rule that requires public companies to disclose the ratio of the C.E.O.’s pay to the median compensation at the firm. The main objective was to give shareholders a yardstick for comparing pay practices across companies, said Senator Robert Menendez, Democrat of New Jersey, who sponsored the provision.
But he acknowledged that the ratio could serve another function. “Productivity can’t come from the person at the top of the pyramid alone,” Mr. Menendez said. “You want a well-compensated work force to bring productivity and the execution to improve the bottom line.”
She suggested an alternative ratio that would compare the chief executive’s pay to the federal minimum wage, a number that would not cost companies anything to calculate. It could also serve another function: She proposes eliminating any tax deductibility for executive compensation that is more than 100 times the minimum wage. “It is simple and sweet,” she said.
Do you think the publishing pay ratio has work thus far?
To answer your question Ly, no, I don't think the ratio has worked thus far simply based on the still increasing trend in executive compensation. I worked for the Eaton Corporation last year, and the CEO, Sandy Cutler, brought home over $20 million. On Wall Street, those figures increase even more. I thought that the income gap comment was well warranted in the article, and it makes you think if these executives are worth anywhere near their compensation package.
ReplyDeleteI don't think publishing pay ratio has worked. The overcompensation of CEOs fails to acknowledge the contributions of low level workers towards the success of the company.
ReplyDeleteI agree with Mark and Dorothy. Despite the ratio, salaries have continued to increase. I would, however, be interested to see more information on the pay-for-performance metrics. While the article suggests it has widened the income gap, how much more productive are the corporations that use this type of compensation system for their executives?
ReplyDeleteWhat I find most compelling about this article is UPS's CEO outright acknowledging that his own compensation--as well as that of other CEOs-- is excessive. However, I understand why companies would wish to align the CEOs interest with stockholders so as to promote high performance.
ReplyDeletelower rank employees should be compensated better in order to increase productivity and improve the quality of work. the article insinuates that the top executives who are taking millions home at the end of the year are ALL male with the exception of one female (who ranked 21st among the top paid executives). this to me speaks volumes about the systemic flaws present in our society and current economic system.
ReplyDeletealso, another interesting thing the article talks about is that most of these earnings are stock-based compensations. as such, companies should encourage their employees to enroll in their 401(k) plans so as to give everybody a fair chance to increase their yearly compensation.
there are a plethora of factors that widen income inequality in society and if, as Picketty earnestly suggests, top earners are not paying higher taxes then that gap will continue to widen with time. the current tax system is obviously not working and there needs to be a more dynamic tax structure that is financially fair and does not paralyze the lower and middle class from enforcing rigid tax deductibility. but again can that be a thing?
by* enforcing a*.. oops!
DeleteThis is the first time i'm hearing about this, but it sounds interesting.
ReplyDelete