In praise of fairness.
An original idea that shouldn’t be regarded as innovative.
We live in interesting times! Whenever I use that phrase, and it seems to slip from my lips too often these days, I am reminded of the ancient Chinese curse, “May you live in interesting times!“
There are a goodly number of countries that have legislation that ‘impose’ a minimum wage for employees. Here in the USA, the Federal level for 2012 is $7.25 per hour but it isn’t necessarily the same across all States. Based on a 40-hour working week, 50 weeks a year, that comes to a gross of $14,500 for the full year.
Let’s contrast that with a person who has been in the news recently, Mr. Bob Diamond, Chief Executive of Barclays.
As the BBC reported on the 2nd July,
Mr Diamond has said he will not take a bonus for this year as a result of the scandal.
It is not the first time the 60-year-old Boston-born former academic – he began his career as a university lecturer – has made the headlines.
Mr Diamond was previously best-known for his huge wealth: last year he topped the list of the highest-paid chief executives in the FTSE 100.
In 2011 Mr Diamond earned £20.9m, comprising salary, bonuses and share options, and he is reported to have a personal wealth of £105m.
There has long been controversy about the amount he earns.
In 2010, Lord Mandelson described him as the “unacceptable face of banking”, saying he had taken a £63m salary for “deal-making and shuffling paper around”.
Barclays dismissed the figure as “total fiction” saying that his salary as head of Barclays Capital was actually £250,000.
BBC business editor Robert Peston said he believed Mr Diamond had earned £6m in 2009 from a long-term incentive scheme and £27m from selling his stake in a Barclays-owned business that had been sold.
So whether he earns £20.9m, £6m or even £250,000 frankly makes no difference to the fact that the gap between what the poorest may earn and the sorts of monies that are given to Mr. Diamond and his like is just plain wrong. [And since writing this on Monday, the news broke on Tuesday morning that Mr. Diamond is now unemployed.] Don’t often quote the bible in Learning from Dogs but 2 Corinthians 8:13-15 is irresistible (King James Version),
Our desire is not that others might be relieved while you are hard pressed, but that there might be equality. At the present time your plenty will supply what they need, so that in turn their plenty will supply what you need. The goal is equality, as it is written: “The one who gathered much did not have too much, and the one who gathered little did not have too little.” [my emphasis]
SUNDAY, JULY 1, 2012
France Pushing for a Maximum Wage; Will Others Follow?
A reader pointed out a news item we missed, namely, that the new government in France is trying to implement a maximum wage for the employees of state-owned companies. From the Financial Times:
France’s new socialist government has launched a crackdown on excessive corporate pay by promising to slash the wages of chief executives at companies in which it owns a controlling stake, including EDF, the nuclear power group.
In a departure from the more boardroom-friendly approach of the previous right-of-centre administration, newly elected president François Hollande wants to cap the salary of company leaders at 20 times that of their lowest-paid worker.
According to Jean-Marc Ayrault, prime minister, the measure would be imposed on chief executives at groups such as EDF’s Henri Proglio and Luc Oursel at Areva, the nuclear engineering group. Their pay would fall about 70 per cent and 50 per cent respectively should the plan be cleared by lawyers and implemented in full…
France is unusual in that it still owns large stakes in many of its biggest global companies, ranging from GDF Suez, the gas utility; to Renault, the carmaker; and EADS, parent group of passenger jet maker Airbus.
Of course, in the US, we have companies feeding so heavily at the government trough that they hardly deserve the label of being private, but the idea that the public might legitimately have reason to want to rein in ever-rising executive pay is treated as a rabid radical idea.
From Doug’s post:
For those, however, receiving bailouts, deposit insurance, government guarantees, tax breaks, tax credits, other forms of public financing, government contracts of any sort – and so on – the top paid person cannot receive more than twenty-five times the bottom paid person. This ratio, by the way, is what business visionary Peter Drucker recommended as most effective for organization performance as well as society. It also echoes Jim Collins who, in his book Good To Great, found that the most effective top leaders are paid more modestly than unsuccessful ones. And, critically, it is a ratio that is in line with various European and other nations that have dramatically lower income inequality than the United States.
In other words, the French proposal isn’t that big a change from existing norms, at least in most other advanced economics (ex the UK, which has also moved strongly in the direction of US top level pay). But despite the overwhelming evidence that corporate performance is if anything negatively correlated with CEO pay, the myth of the superstar CEO and the practical obstacles to shareholder intervention (too fragmented; too many built in protections for incumbent management, like staggered director terms; major free rider problems if any investor tries to discipline extractive CEO and C level pay, which means it’s easier to sell than protest) means ideas like this are unlikely to get even a hearing in the US. Let the looting continue!
As Patrice Ayme commented on that Naked Capitalism article, “France will pass the 20 to 1 law, as the socialists control the entire state, senate, National Assembly, Regions, big cities, etc. Only the French Constitutional Court could stop it. That’s unlikely, why? Because one cannot have a minimum wage, without a maximum wage. It’s not a question of philosophy, but of mathematics.“
Let me go back and requote this,
…. the top paid person cannot receive more than twenty-five times the bottom paid person. This ratio, by the way, is what business visionary Peter Drucker recommended as most effective for organization performance as well as society. It also echoes Jim Collins who, in his book Good To Great, found that the most effective top leaders are paid more modestly than unsuccessful ones. And, critically, it is a ratio that is in line with various European and other nations that have dramatically lower income inequality than the United States.
Thus if society was to embrace this approach to fairness, in America the top paid person in 2012 in the USA would be on 25 times the minimum wage level of $14,500 a year or, in other words, $362,500 a year.
I’m not a raving liberal but I am bound to say that this sits pretty well with me. How about you?
As I opened, an original idea that shouldn’t be regarded as innovative.