Thursday, February 9, 2017

Compensation Equity

Most corporate officers have good educations and advanced degrees. Sometimes it means they are smart people and sometimes it means their family had enough money to pay for expensive schooling. Corporations generally pay their executives well. Thirty years ago, executives were paid for making their companies successful. Because of tax laws dictated by the government, compensation methods changed. Instead of salary increases, it became more beneficial to give corporate executives stock, medical care, country club memberships, etc.

When collective bargaining organizations ran into difficulty getting hourly wage increases, they started bargaining for more vacation days, more holidays, more sick days, better medical coverage and other needed benefits. Some companies have stock ownership plans or contribute to IRA’s for hourly employees.

I remember about twenty-five years ago; a large corporation was doing so badly they thought they needed to replace their CEO. He was under contract and to get him to leave they had to pay him higher compensation to leave than he would have made if he had kept his job. I do not remember the name of the company, but I do remember thinking, “What a stupid idea.” Paying a person to leave because he did a poor job. It became a standard practice to give people, especially CEO’s a large severance pay when they left, regardless of whether they were good at their job or not.

When government raised personal and corporate taxes, something had to give to keep profits up, so executives would not lose their positions. Salaries were now entrenched for corporate executives, and they could not raise prices, because the people also had less money to spend and they would lose business. The corporate solution to the problem was lower wages for hourly workers. American workers and labor unions were not anxious to take pay decreases and it also caused bad publicity for the corporations. So, what was the answer? Cheaper labor and more customers was their answer.

Corporations and the national chamber of commerce began lobbying congress to change immigration law to allow more immigrants who would work for a lower hourly wage. American workers and labor unions soon realized what was happening. Unions were divided on what they wanted. Some favored immigration to increase the size of their organizations and some wanted less immigration to keep wages high for the people they currently represented. Everything is complicated and it gets more complicated as government involvement increases.

Then along came a government that cared more about the weather than they cared about people. The result was corporations moved out of the country, more people became unemployed and the people still working were getting reduced compensation and fewer hours to work. Meanwhile corporate executives still had stocks that were increasing in value at the same time hourly workers were being replaced by lower paid workers or outright losing their jobs.

Today we have a pay disparity that needs to be addressed. If corporate executives and boards of directors do not recognize the problem and take some action to address it, the government will need to do that, which will make the issue more complicated. The best solution is for executives to pay attention and address the problem. In my opinion, less compensation at the top and better wages for their employees is the best answer.

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