Wednesday, August 31, 2005

Lowering the maximum wage

I've been reading this and other interesting articles on wage issues and I have a simple question: Why can't CEO salaries be capped by law?

I'm not talking a specific amount, but, say, 100 times the mean salary of employees.

I know that there are those who say this if foolish. Wharton business professor Martin Conyon said, "Capping pay is not an option. It won't work. If the objective is to circumvent avarice then those so inclined will simply find alternative routes to achieve their goals."

That seems a bit off. It's like saying that thieves are going to try to steal from you anyway, so why not just give them your stereo?

Honestly, I'm really asking here. Talk to me.


Anonymous Jim said...


The anti-wage capping argument is, I suspect, that there are so many ways to compensate a high-ranking executive that the law would be unenforceable in practice.

The overblown CEO salaries are predicated on the belief that a good CEO will earn the company more money than a bad CEO would earn at that time. However, I have not seen a careful study that demonstrates this belief.

(I've seen some data that, in fact, contradicts this belief. I.e., data that shows no trend in plots of CEO compensation against performance metrics for their corporation.)

(I believe that one can find specific cases why a specific CEO has, in fact, been able to lead a company to significantly better performance. I have no grounds to believe that the correlation is true in general.)

The failure here lies with the boards of directors, for agreeing to overblown CEO compensation packages, and to the shareholders who haven't acted in their best interest by clamping down on these excessive costs.


3:51 AM  
Blogger Nitpicker said...

Thanks, Jim.

5:49 AM  

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