Monday, November 23, 2015

Taking Carrot and Stick to Executive Compensation

As noted in the previous post, greedy CEOs place their own financial interests above those of the companies they are responsible for and the needs of their workers.

And boards of directors, seemingly accustomed to such executive palm-geasing in their own organizations, look the other way, or cover their behinds by pointing to so-called so-called “compensation consultants” (also overpaid).

So here are the results of some thinking that followed the composition of the previous post.…

I recommended that CEOs and top executives (including college football coaches, university presidents and executives of non-profits) be compensated at a rate no more than five times the compensation of the average worker in their organization. (Note: Executive compensation - pay and benefits - can't be used to compute the average.)

Right now in this country among large institutions, the ratio is, shamefully, on the order of 300 to one.

The proposal also addresses the complaint about “high corporate taxes.” IF the top officers cut their compensation as described, I suggest that current taxes on their corporations be frozen (or possibly even lowered...see below.)

As noted in my previous post if the average compensation for employees is $50k, under this proposal, the higher-ups in the executive suite would get no more than $250k.

Because they are so smart, the executives should be able to manage on 250 grand a year. Rumor has it that quite a few folks do.

If the executives want to raise their compensation, they can so it by raising the compensation of employees. A $10,000 raise to the average employee, raises executive compensation $50,000.

Still not a lot by current executive pay standards, but that’s the point!

Now the flip side. If the corporations and their board do NOT make these changes, the corporate tax rate gets doubled (or made high enough to provide the "stick" to stop to the greed). Call this the "greed is bad" tax.

In short, fair and reasonable pay is rewarded; greed is punished. “Compensation consultants” are shown the door.

Those with sharp pencils might even be able to show that compensation fairness would actually increase tax revenues, if it encourages raising pay for all. The more the average worker makes the higher the total tax revenues from them. The amount might even bring in more revenue than now, even accounting for the “loss” resulting from lower taxes paid by reasonably paid executives.

If the new law results in significantly more tax revenue, the proposal just might allow for an actual reduction in corporate taxes.

Finally, higher paid workers will presumably buy more, which creates more jobs and more tax revenues. It also helps the economy…to say nothing of employee moral. The list of benefits is long.

One item on it might even be the postponement of the revolution, perhaps indefinitely.

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