Case: Cap CEO Wages

David Hansen
NPTE 15

Plan: The United States should cap Executive/CEO compensation relative to the the
company’s lowest wage by placing a 1:1 cap on financial compensation of a company’s
highest compensated employee relative to the company’s lowest compensated
employee.

What the plan does

-Plan means that all employees at a company would be paid the same amount.

Advantage I: Income Inequality

Uniqueness
1 Income Inequality Increasing Now
-A CBO report shows that during recovery from the 2009 recession, wages for the top 1% grew
around 20%/year while wages for the bottom 99% increased by about 1%/year.

-Inflation adjusted income actually fell for the bottom 90% of Americans between 2009 and
2013.

2 Inequality will continue to rise due to rising CEO pay

-Income inequality between CEOs and workers has consequently exploded, with CEOs last
year earning 209.4 times more than workers, compared to just 26.5 times more in 1978 --
meaning CEOs are taking home a larger percentage of company gains.

3 Rising CEO Pay harms the economy

-A University of Utah found the more CEOs got paid, the worse their companies did. The study
followed over 1500 companies from 1994 to 2013, and compared what are known as firms’
“abnormal” performance, meaning a company’s revenues and profits as compared with like
companies in their fields. They were startled to find that the more CEOs got paid, the worse
their companies did. In fact, at the very top, the 5% of CEOs who were the highest paid, and
found that their companies did 15% worse, on average, than their peers.
http://www.forbes.com/sites/susanadams/2014/06/16/the-highest-paid-ceos-are-the-worst-
performers-new-study-says/

-The reason for the low performance is over confidence. CEO’s who get paid huge amounts
tend to think less critically about their decisions. In fact, investors are now questioning their past
actions of investing in companies that pay CEO excessive amounts.
4 Inequality makes economic stagnation inevitable
- Alan B. Krueger, President Obama's Chairman of the Council of Economic Advisors stated that
income inequality causes wealth consolidation. The wealthy then spend marginally less and use
their wealth to influence politics so as to decrease spending and inflation. Since the wealthy
tend to save nearly 50% of their marginal income while the remainder of the population saves
roughly 10%, other things equal this would reduce annual consumption (the largest component
of GDP) by as much as 5%.

-Nobel Prize winning Yale economist, Robert Shiller identified income inequality as the largest
threat to the economy, "The most important problem that we are facing now today, I think, is
rising inequality in the United States.”

Impacts
1 Poverty
-Civic rights activist, Abu Jamal wrote, “As many people die because of relative poverty as
would be killed in a nuclear war that caused 232 million deaths; and every single year, two to
three times as many people die from poverty throughout the world as were killed by the Nazi
genocide of the Jews over a six-year period. This is, in effect, the equivalent of an ongoing,
unending, in fact accelerating, thermonuclear war, or genocide on the weak and poor every year
of every decade, throughout the world [...] much of that violence became internalized, turned
back on the Self, because, in a society based on the priority of wealth, those who own nothing
are taught to loathe themselves, as if something is inherently wrong with themselves, instead of
the social order that promotes this self-loathing.”

-Poverty uniquely harms women. Over 133K people within the US die from poverty each year,
and a 119k people die from income inequality according to the American Journal of Public
health. Over 17m women live in poverty in the US, compared to 12.6m men.

2 Economic stagnation makes war inevitable

-Yale Professor Walter Mead argues that economic “crisis can also strengthen the hand of
religious extremists, populist radicals, or authoritarian traditionalists [...] The wars of the League
of Augsburg and the Spanish Succession; the Seven Years War; the American Revolution; the
Napoleonic Wars; the two World Wars; the cold war: The list of wars is almost as long as the list
of financial crises. Bad economic times can breed wars. Europe was a pretty peaceful place in
1928, but the poisoned German public opinion and helped bring Adolf Hitler to power. If the
current crisis turns into a depression, what rough beasts might start slouching toward Moscow,
Karachi, Beijing, or New Delhi to be born.”

http://www.newrepublic.com/article/only-makes-you-stronger-0

Solvency
1 Limiting CEO compensation results in a higher wages
-By tying CEOs wages to their lowest employee we would create an incentive for CEOs to raise
their employee salaries. While this seems unlikely, a good example of this is Whole Foods.
Whole foods CEO wage is capped at a 19:1, and shortly after this cap was set in place in 06’
the lowest wage at whole foods was raised to 10.10 an hour.

-“In all the English-speaking countries,” writes Piketty in his book Capital in the 21st Century,
“the primary reason for increased income inequality in recent decades is the rise of the super
manager in both the financial and non-financial sectors.”
http://blogs.reuters.com/financial-regulatory-forum/2014/05/08/super-managers-governance-
spotlighted-in-economist-pikettys-blockbuster-capitalism-critique/

2 Capping compensation allows for flexible adjustments

-Problems with minimum wage increases is that they are not tied to inflation, but having CEOs
tie their salary to their lowest employee will incentivize them to raise wages along with inflation,
because their salary will only adjust to inflation if they do so.

3 Plan would be a self-correcting institutional action

-Because violence against women has been an institutional phenomenon, we must take an
institutional approach in order to better understand it and break it down. One of the reasons
white people are bad at addressing issues of race is because they only understand it through
easily identifiable interactions, such as someone saying the N word - the problem is that they
never realize racism on an institutional level, which leads them to ignore race in the broader
political sphere. the same is true for sexism, we need to expand our understanding of sexism to
an institutional level if we want to address its subtleties and root causalities

Advantage II: Super Managers

Uniqueness
1 What super managers are
-They are top executives of large firms who have managed to obtain extremely high, historically
unprecedented compensation packages for their labor.
http://equitablegrowth.org/research/todays-supermanagers-wealthy/

2 Super managers are the cause of legislative war against the working class
-The erosion of the real minimum wage; the decay of labor unions and collective bargaining;
globalization and intensified competition from low-wage workers in poor countries; technological
changes and shifts in demand that eliminate mid-level jobs and leave the labor market polarized
between the highly educated and skilled at the top and the mass of poorly educated and
unskilled at the bottom are all the result of a preference to super managers.

-The reason for this is that the massive accumulation of wealth by a few has allowed them to
control discourse over economics. The very wealthy can spend hundreds of millions on politics
to ensure they have future control of wealth. While the current system is unfair, it is only going to
get more so.

3 Preference for super managers makes structural violence inevitable

-The visible economic preference for certain individuals makes violence more likely. A 2008
Study by Leon and Eastman that looked at empirical data for several countries over the course
of 40 years found that in countries with super rich and a relatively poor working class, there are
higher rates of murder and structural violence.

Impacts
1 Environmental racism
-Environmental racism is placement of low-income or minority communities in proximity of
environmentally hazardous or degraded environments, such as toxic waste, pollution and urban
decay.

-One product of these discourses is that the American map is divided between elite spaces and
those spaces occupied by what dominant society views as literally ‘garbage humans,’
individuals worthy of so little regard

2 Justifies extinction
-The globalization of this organization starts processes of extermination worldwide.
Communities of garbage humans globally are marked for annihilation. Wages are a form of
calculation that determines that a certain individual is worth a fraction of another. The people
worth small amounts are considered garbage, disposable and pushed into landfills.

-This means that any population becomes disposable at any time in the name of the greater
good.

Solvency
1 Plan removes the mechanism from which super managers derive their power
-By making the same as every other worker, super managers no longer have the ability to
spend large sums of money on lobbying efforts to push other populations to the periphery.

2 Plan increases the power of traditional powerless groups

-Wage earners that did not have enough wealth to engage in politics now have the same
income as their super managers. This increases democratic effort because people are no longer
worried about making a living wage.

3 Plan is good for companies

-The plan effectively makes companies engage in profit sharing with their employees. Because
super managers still want to make as much as possible, they will pay everyone as highly as
they can.

-This increases performance incentives because there is a direct benefit for employees making
their place of work more profitable.