Monday, May 08, 2006

Do Company Executives make too much?

The short answer -- yes. The right answer? maybe. But that isn't really our call, it's up to the people who hire and pay the salary to decide.

Nader likes to complain about how the average salary of executives is increasing much faster than the average salary of workers.

First, that is what would be expected in a normal environment, because, just like with the average incomes discussed below, the very few at the top have a much greater opportunity for large increases in salary than the average salary of all workers, or even the salary of the lowest-paid worker.

In fact, with the minimum wage, we pretty much freeze the salary of the lowest-paid worker, because if there are workers that aren't worth the minimum, we still have to pay them the minimum, which probably means we will make that up by not giving them raises as quickly, even when they might be good enough to make MORE than the minimum wage.

But there is a 2nd factor at work, the growing size of companies.

If 10 companies each pay their chief executive 1 million dollars, and then the 10 companies merge, shouldn't the new chief executive earn 10 million dollars, while the employees don't get a raise at all? He's doing 10 times the work, isn't he, managing 10 times the employees, while the employees are doing the same jobs they did before.

Take a summer painting business. You can get a job managing the painting teams, and you get a salary based on how many painting-hours you get done. IF you do a good job, you might need twice as many painters, and make twice as much money, even while each painter makes the same amount. When you double the business, is it "unfair" that your salary goes up 100%, while the worker's salaries don't rise at all?

I believe stockholders need to take a more active role in questioning the high prices paid to the management team -- otherwise, companies can get into a silly bidding war driving up salaries without significantly improving the overall management of business.

And, for the record, I have no problem with the top executives in the country making more money than the top baseball players in the country.

1 comment:

Kenton said...

If the minimum wage was abolished today, wages would not go up! The very reason that the minimum wage was put in place was precisely because of that--wages during the time of the Progressive labor reforms were stagnating. Sweatshops that willfully skirt the minimum wage don't take away wages from those who aren't "worth the minimum" and give them to those who are, all of the sweatshop workers' wages suffer.