2 PARAGRAPHS 4 LIBERTY: #203 "COMPENSATION PACKAGES FOLLOW-UP"

     Last week’s edition brought up the dilemma of the Increasing disparity of compensation packages of high-ranking executives of public companies as opposed to the company’s lowest-paid workers, and requested a response from our “2 Paragraphs” Family as to how to address it (if it should be addressed at all).  Several of you responded, and I am following up this week with some of the thoughts expressed.  For background, one reader pointed out that CEO pay in the US was documented in the year 2000 to be 376 times the pay of the typical worker. In 1995, the ratio was 123-to-1, in 1989 it was 59-to-1, in 1978 it was 30-to-1, and in 1965 it was 20-to-1.  So the disparities have increasingly been wider over time.  (See [https://www.forbes.com/sites/shelliekarabell/2018/02/14/executive-compensation-is-out-of-control-what-now/#754ff6c0431f]).  So what were the suggestions?  One was to have governments implement higher marginal income tax rates for the very top public company earners, which would have a dampening effect upon increasing packages.   A second was to set high corporate tax rates for firms that have very high CEO-to-worker compensation ratios.  A third was for shareholders themselves to vote upon the compensation packages of high-ranking executives.  A fourth was for the law to direct public companies to have these compensation packages set by truly independent boards of directors.  And a fifth was to require public companies to disclose the range of the highest and lowest compensation packages so that the customers could use their inherent power to decide whether to purchase that company’s products and services or not.

     Personally, I think taxes are already too high even for high-ranking executives, and increasing them further would both produce even more “creative” chicanery in the corporate world, as well as having more of our companies take their business operations off shore.  And besides, sometimes these packages result in more innovations and productivity for companies, so society does not want to discourage those results.  The third suggestion has some superficial attractiveness, but the problem is that shareholders would mostly both be acting upon imperfect and incomplete information, and would also be easily subject to manipulation.  So that option is more likely to hinder than help.  And, although it certainly would be a good idea to have a truly independent panel set these compensation packages, probably based upon comparisons with similar executives in other companies, implementing the appointment process would almost be impossible from a practical standpoint.  (Not only is every company different, but imagine how many lawsuits would be filed contesting whether the boards were really independent or not!)  So all of these four suggestions would result in major unintended consequences.  That leaves the fifth suggestion, which rightly relies upon the Free Market for relief.  But to a large degree laws and regulations already require these packages to be publicly disclosed.  The problem is that no one really is digging into and widely publicizing the information, so the beneficial effect of this approach has been minimal.   Accordingly, other than renewing attempts more broadly to disseminate this information in the marketplace, and even though the status quo does sometimes give us some obscene results, I recommend that we leave this problem alone.

Question for the Week: How do billboards communicate?  Answer: In sign language.

Judge Jim Gray (Ret.)

2012 Libertarian candidate for Vice President, along with

Governor Gary Johnson as the candidate for President

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