No one deserves $28 million (or more) per year to run a company.
You can read hundreds of thousands of blog posts detailing how we got into this mess as a country comprised of companies that do not pay taxes, executives that game the system to receive enormous bonuses, and constantly increase CEO pay for all the boards of directors they serve on, so that their salaries will thus increase, basically raping that old hoary chestnut “we get paid what the market will bear.” No, this post isn’t about that despicable rich boys club that is destroying companies left, right, and middle America, this post is about how to fix it.
Tying executive compensation to performance is a sticky subject, one that executives would never agree to, because there are very few executives that truly excel in their work. They’ve become addicted to ever-increasing rewards for mediocre work, golden parachutes that guarantee obscene bonuses for what amounts to running a company into the ground (i.e. being paid to leave, see Nardelli for a good example).
The plan I’ve formulated is simple. The absolute top executive may not, in any case, receive compensation in excess of 100 x/hour of any American, domestically based worker, including contract employees, temporary employees, subsidiary employees, franchise employees or key supplier employees (because this method would encourage companies to spin off parts of the companies into separate entities, to dodge these requirements). Or, they would be limited in pay to 1000 x/hour of ANY foreign worker employed by their company, suppliers, or subsidiaries. Whichever of these is less. Flat U.S. Dollar, NOT adjusted for exchange rates and purchasing power. Again, any spin offs or dodges should be punished severely.
Let’s look at a hypothetical company that pays workers $10.00 per hour. The CEO would be permitted to pull down, maximum $1000 per hour. $40,000 per week, $2,080,000.00 per year. Of course this is calculated on a 40 hour work week, these CEOs are salaried workers.
Now if this same company pays $1 per day to workers in a foreign country, then it gets wickedly ironic, and fast. Based on an 8 hour work day, $1 works out to $0.125/hour. Twelve and a half cents. Now, the maximum the CEO is allowed in compensation stands at $125 per hour, $5,000 per week, and $260,000 per year. This sounds absolutely fair to me.
Constraining executive compensation in this manner would instantly turn almost every company in this country obscenely profitable overnight. Because remember, these are maximum amounts, most CEOs would be paid far, far less.
As far as bonuses are concerned, they should be rare, never for retention, and on completion of highly radical company rescue attempts, or truly innovative ideas and brilliance. These bonuses should not exceed the amount of one full year of the executive’s pay, should be paid in stock, should not be paid unless the executive is employed for five years further from the date of the bonus in the same or higher position in the company, and cannot be cashed out (except in family/health hardship cases) before one year after they have left the company. These monies should be able to be recouped as well, in case any impropriety is found during or after employment.
This course of action would have two more immediate benefits, as CEOs scrambled to bring every job they could back into this country, they would simultaneously raise all workers’ pay (and lest we forget, the more people spending money you have, the larger your economy grows). Of course inflation would run rampant unless certain steps were taken to control the transition to this type of a pay scale, but I’ll leave that to others smarter than I to work out.
In addition to these benefits, you could legislate that a certain percentage of the vast sure-to-be leftover profits must be reinvested in company infrastructure, employee education, health care, etc. This would solve the health care crisis, many new jobs would be created and old jobs saved. Also, maybe we could turn internet access, and speeds into less of a joke in this country. All the cable companies, and telecommunications companies are handily overcharging for the service they provide, NOT upgrading their networks, and then trying to institute completely draconian Bandwidth Caps! So that as we transition to more and more video content and heavy internet use, more and more regular users will get snared in the trap of predatory overage fees, just like the vile ones the cell phone companies charge for voice, text, and data (and international roaming and data).
Any other leftover moneys should be further reinvested into the business (such as extra R & D), placed in safer types of investments as a rainy day fund, or paid to the government in a beginning of a repayment plan for taxes owed. Let’s be reasonable, if a company wants almost all the rights of a private entity or citizen, then they deserve to live up to the responsibilities a citizen is held to (paying their damned taxes, not dodging them).
This plan would be an excellent (and FAIR) solution to many of the problems facing our country and its companies today. It would immediately free-up untold billions of funds that would be used to raise worker compensation both here in the states, and abroad, bring hundreds of millions of jobs back into this country, and create an inestimable number of new jobs as these companies used excess funds to invest in more R & D, company infrastructure, health care, and would also get our government back on its feet by almost wiping out unemployment (no need to pay benefits if everyone is working), and fully funding it with taxes that always should have been paid. Perhaps we could begin paying down the national debt as well.
The market has been corrupted, and this corruption needs to be beaten to death with the reasonable stick.