Thinking Long Term: PART III > CEO to Average Worker Pay

This is part three in my series about thinking long-term.
I have been trying to think of ways to reward long-term investors and discourage short-term speculators.

I am not saying that short-term speculators shouldn't be allowed to do what they want to, but not to the point that they hurt the majority of the people and the country as a whole.

CEO to average worker pay has become ridiculous. This is greed, plain and simple.

I don't need to tell you that
CEO to average worker pay has gone from about 30 times in 1970, to around 40 times in 1980, to 400 times and even over 500 times in the 2000s.*

Should CEOs get paid more than the average worker? Sure, as I said before "Pure Communism" doesn't work. But neither does "Pure Capitalism" for that matter. CEOs are "supposed" to be brighter than 90% of average workers, and should be rewarded for both their ability and their willingness to take the weight of a company on their shoulders. But, at the same time there should be limits to this ratio for the entire sanity of the nation.

I propose that the Obama Administration and congress set the limit at:
50 times

But, why should the government step in to readjust this discrepancy? Why should it matter that CEOs are getting more in a year than the average worker will ever earn in lifetime?

For one thing it could lead to violence. If the pay ratio is so out of balance and the economy gets really bad, like the Great Depression, don't be surprised if some CEOs get murdered or there is violence against their families. Workers will get so frustrated that these guys and their families could be in serious danger.

But lets put that aside for a moment:

Let's look at professional sports, the National Basketball Association (NBA), the National Football League (NFL), Major League Baseball (MLB), and even the National Hockey League (NHL).

The major sports leagues have set rules has to how much a team can pay all of its players on a team (although I think many of these players are very overpaid and the leagues should have done more to cap their salaries. Sure, if a guy like Michael Jordan sells tickets and gets a team a bigger television contract, he should get a piece of that. But, giving a guy like Alex Rodriguez $25 million a year is over the top).

Why did the sports leagues make rules for teams to follow in player pay?

To protect the league as a whole. To try and insure the long-term viability of the league in the future. Around the end of the 1960s the leaders of the major sports realized that the league was also a "brand," and should be protected and nurtured. If the leagues didn't step in to protect the brand of league, the teams with the really big pockets would, 1) always win, and 2) keep putting the small teams out of business. Teams like the Boston Celtics, the New York Yankees, and the Los Angeles Dodgers would always get the superstars and the small market teams could never compete.

So, what has that got to do with all big corporations and the federal government?

The United States is also a brand. The federal government must step in and put restrictions on CEO pay to protect the entire "league" of companies that make the United States of America.

Why can't the corporation impose this themselves internally?

Because they know that without regulation that some teams will not play fair, they will break a "gentleman's agreement" and pay more. Only a congressional mandate can "try" and level the playing field. Of course some companies will find fancy ways around the legal restrictions like setting up secret accounts in Switzerland or the Cayman Islands. But hopefully those will be a small percentage and will be found out and prosecuted (like I needed to think of yet another thing to insure lawyers have more work!).

boards of directors will not fix this problem by themselves because they are so afraid that the really good talent will walk and go somewhere else.

Now no doubt that CEOs and boards of directors will scream about this, and if congress passed regulation, the boards will then scream that their CEO will go to Europe, Canada, or somewhere else.

But maybe that is not such a bad thing. If those CEOs are willing to walk then maybe their heart was not really in the company and their priorities were with their wallet. This will mean someone else will step in who really wants to be there in that job.

So, the 10% of CEOs that might flee the U.S., let them go, so be it. CEOs with their heart in the right place will, 1) want to stay, and 2) want to run the company they love, and 3) will think long term. (We could also work to get other countries to join in with us.)

Congress and the Obama Administration must step in and protect the "USA League." This is not only thinking long-term, but it is making it a little fairer for the little guy out there, the average worker. And, it may just save the life of a CEO or protect them from violence against them and their family if things get really bad. A side benefit of government imposed rules just might be that average worker pay actually goes up!

If CEO (and other executive) pay was capped at 50 times, then those dollars just might go to other workers and shareholders. Thus broadening the entire tax base, not just going to buy second homes for executive overseas.

It is time to protect "the league" for all of the teams and average workers out there. This is one other piece that can restore confidence and let the average worker, investor, and voter focus on the long-term. And not worry so much about the near-term.


*For further reading, see:

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