Contributors

Tuesday, April 21, 2015

How 'Bout We Apply Conservative Logic to CEO Salaries?

Last week Seattle CEO Dan Price announced that he was going to pay a minimum wage of $70,000 at his credit card processing company. It makes a ceratin sense: shouldn't the people who actually do all the work at a company make the money?

The right went nuts:
Perhaps the most prominent attacker was Rush Limbaugh, the right-wing radio host, who labeled the move “pure, unadulterated socialism, which has never worked.”

He added: “That’s why I hope this company is a case study in M.B.A. programs on how socialism does not work, because it’s going to fail.”
Why does the right believe this?
Most critics were not as ideological as Mr. Limbaugh but were nevertheless put off by Mr. Price’s deviation from trusting in the market, both to set wages (his own as chief executive and that of his employees) and to maximize his own profits. Overpaying workers may make them lazy and is likely to inspire resentment among colleagues who once sat on the higher end of the pay divide, they warned.
Bloomberg reports that in the 1950s, the golden era of American prosperity, the average CEO made 20 times what the average worker did. That rose to 42-1 in the 1980s, and 120-1 by 2000. In 2009 it was 179-1, and last year it had already increased to 204 to 1, up 20% since the recession.

What's really disturbing about the experts' dire warning is that they claim raising the wages of lower-paid workers will anger the  higher-paid workers. Why? Because they can't lord their bigger paychecks over the plebes anymore? Are people really so morally deficient that they derive pleasure from other people making less money than they do?

But back to CEOs: by Rush Limbaugh's own logic, overpaying CEOs makes them lazy and incompetent. And this seems to be the case. For example, Ron Johnson, the former CEO of J.C. Penney, made 1,795 times the average worker. He was let go after 18 months because he was destroying the company, making changes that drove the department store chain's most loyal customers away.

Remember Mitt Romney's famous "I like being able to fire people" quote from the 2012 campaign? According to conservative ideology, wielding this kind of power over people makes them do a better job. The threat of losing their job is supposed to improve performance.

First, how is being fired a threat if you just got paid $10 or $20 or $50 million last year?

Then, when CEOs do get fired, they almost always get gigantic severance packages:
[Target executive] Robert Ulrich retired with a $138 million package. Exxon Mobil’s Lee Raymond left in 2005 with a whopping $321 million. Gillete’s James Kilts took $165 million. Home Depot’s Robert Nardelli received $223.3 million. And yes, you can be a shady character and still collect. UnitedHealth Group’s William McGuire, embroiled in a options scandal, exited with $286 million.
By any sort of conservative logic, these mammoth severances are completely indefensible. What kind of leverage does the board have over a CEO if getting fired nets the guy 10 times the average Powerball winner?

And it doesn't matter how much CEOs screw up. Even after Ron Johnson pooched J. C. Penney, some idiots have given him $30 million to "reinvent" the shopping experience.

Clearly, paying an annual salary that allows someone to live the rest of his life without having to work another day is wrong-headed, counterproductive and socialistic.

CEO salaries didn't increase tenfold over sixty years because of the "market." Salaries rose because greedy, self-dealing CEOs all sit on each other's compensation boards and incestuously vote each other bigger and bigger salaries. It's one giant back-scratching quid-pro-quo scam.

By conservative lights, the best way to increase CEO performance, is to cut them all down a peg. Slash their salaries and take away their golden parachutes. Keep them hungry and competitive. Put the fear of god into them. Make firing them mean something. If you pay them too much they'll go soft.

If these kind of "market forces" are supposed to work for teachers, janitors and factory workers, they should work for CEOs too. And because CEO salaries are so huge, pay cuts for execs will really crank up corporate profits at the same time!

Or, as a highly-compensated CEO might say, "Net-net: win-win!"

2 comments:

rw said...

It's not socialism if it's a private company. It's their firm. They can do whatever they want. Rush Limbaugh is an idiot.

Mark Ward said...

I didn't get that socialism remark either. I wonder if Rush has the same feelings about the NFL (wealth redistribution).

I'm also helping the Rush follows up with this company in a few years to see how not only they are doing but the surrounding economy.