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I don’t believe government should tell companies how to set their wages.
If you tie this to government contracts that is fine but once you factor in share/equity then caps and ratios become far more challenging to manage.
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Regardless of how you feel about wage inequality, salary ratio caps are a stupid idea because they’re easily gameable and therefore don’t work. Companies just contract out everything that would bring them below the cap and they’re golden.
Spending time on dumb ideas that won’t work doesn’t help fix structural economic inequality.
A more fair comparison would be on the spread of wages within a company and how far out are the highest and lowest wages are from the median (GINI index style) because of the following. This is in no way saying every person is not important.
1) Who is the “lowest paid worker” it wouldn’t exactly be fair to compare a cashiers salary to the CEO’s salary and say 100x. Because they bring different value to the company and are not equally replaceable.
2) Even if we were to do this, the salaries in the articles include 40-50M dollar bonuses that are limited to stocks and paid out to based on very aggressive performance incentives and limited to 1-2 people in the company.
In consulting, its a little different because partners actually sell the work that keeps the firm profitable and (keep others employed) they use that as justification for the larger bonuses. Lower levels are also paid quite decently and (most importantly) have the ability and visibility to get to the top — something that is rare if not impossible for a cashier.
Typical of much of the social justice stuff today - good intentions, horrible execution.
As opposed to obsessing over capping the top, we should be focused on pragmatic, effective ways to raise the bottom. Simple thought experiment - take any large company, add up the amount of comp the entire C-suite takes home each year, and divide it evenly among all workers in that firm. In all but some edge cases, you would be talking about a few hundred to a few thousand dollars.
I don’t have the answers, but part of it has got to be ending this rush to the bottom in everything. It seems our market is optimized to deliver Basic Economy seats, $10 jeans, and $15 all-you-can-eat restaurant specials. How do we break out of that, so that consumers are willing to pay more for quality, enabling companies to pay more to workers, creating a virtuous cycle?
Since trickle down economics became popular in the late 70s, CEO salaries have increased 940 % while the typical worker compensation has increased 12%.
This was more due to tax laws with unintended consequences. Most of the big disparities are due to bonuses and not straight salary. Congress changed the way bonuses are taxed creating huge incentives for companies to pay executives through bonus structures. This then led to an arms race for executive pay. Reganomics sucks but I don’t think it was the cause here.
Even if the caps were effective, guess what companies would do? Fire all the low wage jobs and/or automate them and keep on a few higher paid staff. Whenever there is pressure to bring the bottom wage up (for example, with minimum wage laws), companies do this. Why do you think McDonald’s has automated cashier lanes now?
I think the reason why people have begun discussing UBI more and more these days is related to the point that companies will always try and game the system. It comes down to which system would be harder to find loopholes: salary caps (assuming the goal is to raise wages bottom up) or taxes (redistribution top down).
I would hope that people agree the income disparity has become too high. But my opinion is that taxes would be more effective of a solution. Companies would probably just create subsidiaries and contract out the work in order to get around raising wages
Covid has proven: you can’t expect a lot of people to do the “right” thing
There shouldn't be caps, but there should be some sort of "all ships must rise with the tide" concept where sustained growth requires commensurate increases to comp across the board.
There are partners who make far more than 100x what new associates make, at least at BCG
P2, I agree that ESG is a good step, the unfortunate reality is that it is more tied to optics than concrete change. For example companies speaking employee value and benefits are the same ones profiting off the epidemic and laying off people (WSJ).
At the moment most ESG momentum has been around driving brand recognition and value, in a time when everday consumers are becoming more activist oriented through their wallet.
I fear that when we ask the private sector to implement change, it will do enough to maintain status quo, where as we need a bit more transformative agenda that to your point is future looking and accounts for the people left behind as AI / robotic productivity increases.
There shouldn’t be ratio CAPS. But the ratio should somehow be figured into tax rate.