Make CEOs earn it

Editor News Leave a Comment


George Warren, Columnist

Today I digress from my program of discussing the collective mistakes made by our country since it’s founding to discuss another problem that has been with us since the beginning—a minimum hourly wage. I suggest we need a new paradigm. There is always a bone of contention between management and labor regarding this issue, with management predicting a crippling of the economy and a loss of jobs if the rate is raised. It would be seen as mean to just say I don’t like the idea. The issue is again in the news, because the Seattle suburb of SeaTac has voted in a public initiative to raise the minimum wage to $15 per hour, or $600 for a 40 hour week. States or cities are able to enforce minimum wages which are higher than the Federal standard if they choose. Georgia law, in some specific exceptions, allows only $5.15 per hour, compared to the Federal rate of $7.25. The exceptions include students, those under 20 for the first 90 days of employment, and persons who receive tips from customers. To my knowledge, this is one of the lowest state rates on record.

President John F. Kennedy is credited with coining the idiom, “A rising tide lifts all boats.” This should be our new paradigm. My suggested solution to the problem is to eliminate the minimum wage law, and replace it with a CEO/hourly worker wage ratio. The CEO, in his quest for higher remuneration, will then have the distinct incentive to bring his employees along with him, because of the ratio. You can then bet that he will not take such a dim view of raising employee wages, if it means his remuneration is tied to the ratio.

In the interest of full disclosure, let me say I am a firm believer in capitalism and entrepreneurship. My first work was at the minimum wage in a super market chain. Within a few years, I graduated to being a salaried sales executive. At the age of 30, I started my own proprietorship, and have never since been guaranteed any income from anybody. But I like to believe I support the idea of equity in wages, according to individual employee contribution.

For the genius who can produce his income without the aid of any producing employees, there should be no limit on his income. This includes few people; perhaps authors, composers, artists. You may be able to think of others. But for the chief executive whose company relies on employees, whether they be clerks, assemblers, IT specialists, waiters, technicians, and scores of other employees; there should be a moral and equitable ratio between compensations. I might add that such a ratio should also apply to sports team figures, who, after all are part of a team, and that team includes every employee. $11.5 million for one year of pitching a baseball is ludicrous.

In fact there is a ratio, but it is hardly moral or equitable. While there is no way to show the ratio for an individual company without them providing the figures, there can be predictions based on Department of Labor statistics. According to the Economic Policy Institute, a non-partisan think tank admittedly led by liberals; CEO pay saw a spike of 15 percent in 2011, preceded by a 28 percent raise in 2010. According to them, CEO pay rose 725 percent between 1978 and 2011, while worker pay rose just 5.7 percent for the period. From the same study, CEOs in 2011 earned 209.4 times their workers average, while in 1978; they only earned a multiple of 26.5 times their workers.

This raises my opinion that we as a nation are going downhill. If you believe the AFL-CIO labor organization, which admittedly must be biased, the ratio is as much as 354 to 1. According to CNN, the labor organization’s president, Richard Trumka, makes only four times the average worker. For purposes of discussion, I would offer the following proposal. Tie the CEO remuneration ratio to the worker ratio at a maximum rate of 100 to 1. This means a CEO whose average wage paid worker makes $600 per week ($15 per hour); could make as much as $60,000 per week.

If the CEO gets stock options of 100,000 shares for the year, the employee could get options of 1,000 shares. If the CEO gets a $1 million bonus, the employee gets a $10,000 bonus. This ratio could be less, if the directors are not that highly enamored of their CEO’s ability, but it could not be exceeded. This would mean the CEO can shop himself around, if he thinks he is not being properly compensated. If he is right, he can improve his ratio. Perhaps he might even have to go to a firm where the worker’s wage is higher than at his old firm, thus increasing his ratio. If he is not undercompensated, he won’t get any offers. What could be fairer?

Leave a Reply