All Financial Wisdom

Tired of CEOs with Stratospheric Salaries?

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The salaries of CEOs are often several hundred times the average salary of the employees. It is an upward race of unstoppable inequality that has occurred since the 70s.

Although the shareholders of the companies could protest a lot about it, in practice they do not…Since the 70s, the wage inequality in companies has skyrocketed.

According to the historical records of modern economics, in the 70s the gap between the salary of top executives and an average worker in the USA was about 20/30 times. In 2012, the fees received by the executives of the S & P 500 companies was about 354x the average of the rest of the workers.

But since then, inequality has continued to increase (at least in the most extreme cases), and The Guardian shows us how there are companies in which this wage gap has reached obscene differences with multiples in the order of several thousand times.

We may not know how to mark the exact threshold of inequality up to which it has a beneficial impact on the system as a whole, but what seems to be objectively evident is that it is impossible for it to be around two orders of magnitude above where it is past the wage gap in the 70s.

We can affirm in a fairly objective way that currently the level of inequality we have reached in developed countries is more than excessive, and, therefore, harms the system especially in the long term.

A demonstration of this would be the social discontent existing in many countries, because, in addition to inequality, the perception of this inequality is almost more relevant. Both  have increased significantly in recent times. 

Indeed, this type of intra-corporate wage inequality has been imposed, to a greater or lesser extent, in all capitalist systems (and in dictatorships as well, of course). But it is no less true that the origin of such a divergent trend was precisely in the country that made stock-options a a form of compensation and turned managers into millionaires. The good ole USA: the cradle of capitalism – in health and in disease.

Without wanting to make a criticism or a defense of American society, I would like to point out the excellent pieces of profound self-criticism that this country sometimes produces.

I have always considered the film “American Beauty” a work of incalculable value, which makes a direct, clear and painful self-criticism of American society to the depths of its essence. Remember that we are now talking about the salary gap in our companies.

The initiative is to give public example at the business level

As on other occasions, when it seems that our system degenerates, and that its own defects lead to collapse, a current of strong self-criticism arises, and we end up redesigning the system from within, setting course again towards his most idealistic principles. And on this occasion, the we prove once again to have a very resilient system.

The regenerative initiative in question comes with the publication by many companies of a new indicator – the salary ratio, which shows how unequal (or equal) the compensation of its workforce is. With this new indicator, a whole social movement is emerging that aims to put a stop to companies that distribute their wealth excessively unequally.

And the regenerative current in question comes more specifically from a federal regulation, which obliges listed companies to publish the salary difference ratio between their executives and the average employee. Actually, this federal regulation is not new. In fact, it has been tumbling through lawmakers’ offices since it first saw the light in 2010 as part of the Wall Street Reform Act and Dodd-Frank Consumer Protection.

Although we must not forget that the springs of power are unfathomable, and perhaps even more so in the country of catharsis, with which the vested interests always go on clinging tooth and nail to a position that is advantageous to them. In fact, if this regulation has not begun to take effect so far, it is because the lobbyist of most of corporate America have been moving behind the scenes, to try to stop (or at least delay) the application of the law that forced them to highlight wage inequality in their companies.

Society and the ethical economic world have walked towards the light

But people are tired of seeing how the American dream has been broken so this particularly sensitive issue has been accompanied by a strong social movement. Both activists and responsible investors (obviously there are also many of us) have come into action and have finally made the regulation go into effect.

And based on the published data, the first concrete actions were not long in coming. In Portland, they have legislated against this excessive inequality by applying a 10% tax increase to companies in which the executive salary ratio exceeds 100 times that of the average worker. The increase goes up to 20% for companies in which the difference exceeds 250 times.

Do you remember what I told you about the catharsis? I would like to see other socioeconomies that could boast this capacity for regeneration.

And of course, we will complain critically about this and about what we have imported, but we will not dare to lift a finger to try to remedy these evils in a sustainable way by ourselves. And I do not blame anyone in particular, and least of all those who benefit less from the system, but the truth is that self-criticism is always necessary, and any socio-economic change of any kind begins with oneself.

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