A Just Wage and Executive Salaries [Zenit]

Moral Guidelines in a Time of Crisis

By Father John Flynn, L.C.

ROME, APR. 25, 2010 (Zenit.org).- As accusations over the responsibility for the global financial crisis continue apace, the subject of salary levels for executives remains a contested issue.

The British government announced a supertax on bonuses for banking executives, but a Jan. 8 report by the Financial Times said most London bankers will suffer little or no impact as banks will absorb all or part of the cost of the tax.

On March 20, the Financial Times reported that Richard Lambert, director-general of the Confederation of British Industry, the U.K.'s largest business organization, warned that top executives “risk being treated as aliens” by politicians and the public because their pay is so out of step with that of the population at large.

More…

This was six years ago – its gotten worse since.

“Exploding CEO pay is a relatively recent phenomenon in U.S. history. For example, in the 1960s, the average CEO earned around 40 times what the rank-and-file workers earned. Today [in 2004] the average CEO makes over 500 times what the average worker earns. And the gap continues to widen, year by year.”

beggarscanbechoosers.com/2005/04/ceo-pay-soared-in-2004-as-us-economy.html

I believe that the article is inflating the average pay for a CEO, 500 times the average worker seems greatly over stated. Just play with some numbers; if an average worker made 45K then the average CEO would be at 22.5 million. I know there are CEOs getting this and more, but do not think it is the average.

I don’t like it either, but then look at how much professional athletes make. Furthermore, despite their incomes, CEOs have little wealth compared with that of Andrew Carnegie or John D. Rockefeller, whose personal incomes were a considerable per cent of the GNP of the Country. Wealth has been spread out. In the Dallas-Fort Worth “Metroplex” there are more than 70,000 millionaires. Furthermore, the working poor have luxuries that my parents didn’t have back in 1940, when my Dad was among the top 10% of earners in the country.

The recommendations the article had made a lot of sense:

[INDENT]
The report concludes with an outline of four theological values that the authors consider useful in discussing executive salaries.

  1. A concern for the poor. They recommend that investors should be more concerned with helping the poor than putting restrictions on the rich, and so they should be more active in ensuring decent levels of pay for those at the bottom end of the scale.

No theological principle will give us an answer to what the maximum pay should be, the report affirms. What we can do is focus on the ratio of the maximum to minimum salary levels in a company.

  1. Just pay. At the same time the report affirms that an appeal to have unrestricted pay policies is contrary to distributive justice. So once more the authors of the report recommend that investors should examine the ratio between top executive pay and the average pay of the lowest 10% of employees. The authors of the report consider that it is hard to justify a maximum ratio of more than 75 times. As well, the report calls for salary packages to be made simpler and more transparent.

  2. The dangers of wealth. Using high levels of pay to attract executives can lead to them being disproportionately likely to put their own financial interests ahead of those of the company and its shareholders.

  3. Good stewardship. Remuneration levels should be based on long-term performance and appropriate attitudes toward risk…[/INDENT]

You will note that the first recommendation is that investors concern themselves with raising the pay rates for the bottom end of the scale than with placing restrictions on the top end.

You will further notice that they identified no specific theological principle addressing what a maximum pay is, only one addressing the lower end.

Further, you will note that this report called on **investors **to do something, not for governments to do something. That is really important, as any other solution set would violate the principle of subsidiarity.

There is one problem not addressed, at least in this report. That is, the impact of institutional investors (e.g., mutual funds, union retirement funds) on how businesses are managed.

One thing that everybody needs to remember is that reports of this nature do not simply address the US or the US and Europe. They also address China; they also address India; they also address the developing world.

In many third world countries, there is a bona fide problem where the poor work for slave wages while the owners live in luxury that would be considered boorish even during the gilded age in this country.

When they see a report like this, socialists attempt to force the shoe horn onto our feet. And, in making a really vocal objection, conservatives often attempt to do the same thing.

You’re overestimating the average worker, too…

Especially since median HOUSEHOLD income is $50K, with large fraction of households being two income. And Latino and black household median income is close to $30K…

seekingalpha.com/article/161271-u-s-median-income-from-1999-2009-no-gain-much-pain

Yes, indeed. And when I was in Beijing I was surprised to see on English-language TV an interview with a guy from the country who was working for “pennies” on the new construction. I sat on the plane with a Chinese guy living in LA who was complaining all the way about the workers in the factory he owned. Wouldn’t like to work for this guy because he evidently runs a sweat shop.

The median CEO salary is $650, 538 annually. Go here:

swz.salary.com/salarywizard/layouthtmls/swzl_compresult_national_ex05000001.html

If we assume $30k for our “typical” worker under those CEOs, than the typical CEO makes about 22 times the typical worker. Of course, there are come CEOs in the larger companies that make huge salaries, yet the median is not at that level.

Further, we must be very, very careful when we start to attack the free market economies. There is NOTHING wrong with wealth. Liberty is far more important than equality and we cannot have both.

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