Adam Grant, best-selling author and professor at the Wharton School of Business, posted the following tweet earlier this week:
That seems to be a pretty big discrepancy. But I have to admit, I don’t know what the differential should be. Was 21X the right number, or was that too high, or even too low?
Also, it should be pointed out that the organization that posted this study, the Economic Policy Institute is a pro-labor lobbying group, so of course it is likely to be biased in favor of workers and against CEOs. Here is a brief description of the EPI from Wikipedia:
The Economic Policy Institute (EPI) is a 501(c)(3) non-profit American think tank based in Washington, D.C., that carries out economic research and analyzes the economic impact of policies and proposals. The EPI describes itself as a non-partisan think tank that “seeks to include the needs of low- and middle-income workers in economic policy discussions”. It is affiliated with the labor movement and is usually described as presenting a left-leaning and pro-union viewpoint on public policy issues. The EPI has a sister organization, the EPI Policy Center, which is a 501(c)(4) organization for advocacy and education. The EPI advocates for policies they say are favorable for low- to moderate-income families in the United States.
Here are some of the recommendations from the EPI on how to deal with this discrepancy:
We need to enact policy solutions that would both reduce incentives for CEOs to extract economic concessions and limit their ability to do so. Such policies could include reinstating higher marginal income tax rates at the very top; setting corporate tax rates higher for firms that have higher ratios of CEO-to-worker compensation; establishing a luxury tax on compensation such that for every dollar in compensation over a set cap, a firm must pay a dollar in taxes; reforming corporate governance to give other stakeholders better tools to exercise countervailing power against CEOs’ pay demands; and allowing greater use of “say on pay,” which allows a firm’s shareholders to vote on top executives’ compensation.
I highlighted the higher marginal tax rates, since that is something I have talked about before, and I am in complete agreement with. High earning individuals have the ability to pay more in taxes; they have reaped the benefits of living in a society that has rewarded them quite generously for their talents; what’s wrong with expecting them to generously share that wealth with society?
The Gates Foundation was started on two basic premises:
- All lives—no matter where they are lived—have equal value.
- To whom much has been given, much is expected.
The second point seems relevant here; what should the proper differential be between top executives and workers?
Again, I don’t know what it is, but 320X seems a bit high; perhaps it’s time for a serious discussion to be had to address such an issue.