Ask Auntie Pinko
July 3, 2003

Dear Auntie Pinko,

I have just discovered your column, and I am enjoying it so much. I have learned much from it.

My question to you relates to the answer you gave to Eric, from Savannah, GA, to his letter of 1/16/2003. Eric asked your view on having a "maximum" wage, and you responded that you did not believe there should be a maximum imposed by law. You gave great rationale in support of your position.

However, it does seem to me, in the last few years, the compensations of CEOs and others working for the Fortune 500 companies have reached absurd levels. Forbes magazine runs a feature each year, reporting the compensation of the highest paid executives. They now run higher than $100 million per year.

I think it would be better for shareholders and consumers to put an end to this absurd competition. It would also show a little respect to the majority of working people, including highly skilled professionals, engineers, doctors, lawyers, etc., to put an end to this charade of a salary competition.

Would a salary cap of $5 million per year be a terrible disincentive to executives? Perhaps that is too high... and professional athletes should be exempted, because they are really entrepreneurs.

John
Woodbridge, VA

Dear John,

You will certainly not get any argument from Auntie Pinko that the personal profit being taken by many of America's CEOs is wildly out of proportion with the value they are producing! It's enough to make you steam, isn't it? Anyone who isn't mad, isn't paying attention (or maybe is one of those CEOs.)

But like many issues, this one is more complex than it appears, and preventing the greed of a small group of corporate extortion artists from destroying our economy is not going to be as easy as you might think. First of all, let's tackle some assumptions, and match them with facts and counter-assumptions:

To begin with, the "compensation" of a CEO is not the same as the "salary" of a CEO. "Compensation" is used to describe the total cash value of all benefits accruing to an employee - which can include everything from mileage reimbursement to employer contributions to health plan or retirement plan coverage, to "incentives" such as stock options, loans, and lump-sum bonuses. The actual "salary" of many of the bloated porkers gorging at our corporate troughs may be comparatively small, even less than the salary cap you propose.

Nor is "salary" the only means of compensating someone. If we place a cap on salaries, Auntie Pinko predicts that we will see a sudden move to "outsource" many highly-paid functions to "contractors." (Payments made to vendors (contractors) would be much harder to regulate than payments to employees!) Other mechanisms would presumably spring up to circumvent such a salary cap, as well.

And you leave a huge and glaring loophole in the possible effectiveness of a salary cap in your suggestion, John. When you suggest that "professional athletes should be exempted, because they are really entrepreneurs," you leave the door wide open for legislators to tack on an endless list of other exemptions, based on logic that makes as much sense to them as your exception for professional athletes makes to you.

Auntie Pinko can't imagine what I would need or want that would require an income of five million dollars a year. But neither do I think it's impossible for someone, acting as an employee, to produce far more than five million dollars' worth of value in a year. Shouldn't employees receive a fair proportion of the value their work produces? Or should the employer be able to keep all but five million?

And, while five million dollars still sounds like an enormous amount of money to me (but then, I'm not so young anymore,) by the standards of today's economy and the amounts of money that can be made in a single transaction, it may not seem that large to everyone. My point here is that no matter what dollar amount you set, there will be bitter, angry, divisive contention about it, which will continue whether you make the number adjust automatically for inflation, or whether it has to be reviewed and changed regularly. And that contention would distract the attention of the American people from the real issue represented by the greed of corporate slash-and-grab artists.

The real issue at stake (in Auntie's opinion) is the ability of a relatively small number of already wealthy and powerful individuals to freely loot the value produced by companies owned by large numbers of American citizens, to their own personal benefit. And this problem can only be addressed by subjecting corporate boards to regulation and oversight that will balance the interests of all capital ownership (including those of us who don't even know we are owners) with the interests of labor, and the public good.

Back when I was doing some research on the stock market for an earlier column, I ran across a startling (to me) fact, John. Both the number and the proportion of Americans who actually own some small equity in our country's vast economy are enormous. If you participate in a retirement plan, if you own any of a number of savings instruments, you are invested in the success of companies you probably don't even know about!

These companies' boards of directors are free to make all kinds of decisions that affect not only the value of your investment, but the quality of your life, your neighbors' lives, your children and grandchildren's lives, without considering your interests in any way at all. You have no meaningful voice in selecting board members, no way of making your wishes count. Your interest passes through layers upon layers of middlemen and fund managers and company insiders, losing influence at each level.

No realistic, powerful, effective mechanism even exists for ordinary owners like you and I to get together and combine our interests and make our wishes known - no mechanism except the votes we cast for the women and men who pass the laws and appoint the regulators that control our economy. Unless our voices are louder in their ears than the jingle of cash from the corporate parasites, the greed of the capital elite will continue to triumph.

Fortunately, there are so many of us, and the greed has become so rampant, disgusting, and blatant, that the window of opportunity is opening. Questions like yours help keep the discussion moving, so thanks for asking Auntie Pinko, John!

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