Would a maximum wage ratio work?

[Sajara]

Jesse Ventura recently had a clip going around the internet talking about a maximum wage.

I don't like that idea because it limits the drive to do more. That being said, I like the idea of a maximum wage ratio. The biggest issue people have is that CEOs in America are making 380 times (on average) the salary of their average worker. If you said that the average ratio had to be 100 (as an example), a CEO could still make an obscene amount of money, but they have the option of making more by paying their workforce more. In other words, your lowest paid employee makes $20,000 a year, the CEO can make $2,000,000. If the CEO wants to make $3,000,000...then they need to pay all of the lowest paid employees $30,000.

My question to you all would be, why wouldn't this work? Be my devil's advocates please!

The first thing I could see is that you would have to make the rule be based on total compensation and not just salary (as the CEO's typically make much more off stock options anyway). I would also think you would need to define it as lowest paid full time employee and highest paid full time employee....but then companies would turn around and only have part time employees (are there laws against that?).

I could see some corporations leaving the US based on this, but more importantly I could see them outsourcing many more jobs to try to get their lowest worker's pay up as all the lower paid jobs would be shipped out of the company...so we would have to include outsourced jobs as part of the lowest paid employees (which might then force jobs back...probably not I know). I'm not sure how to deal with this portion yet and would have to think it through more.

What I would also see though is that the American Middle Class (AMC) would grow and when the AMC grows and has spending power, the economy does well. As the economy does well, more American jobs would be created (my company only hires when we can't meet customer demand...not when there are tax breaks). Customer demand is driven by people with money to burn that want a product. This would then drive the ability for the CEO's to pay their employees more and make more money themselves. AMC does well, everyone does well.

Thoughts?

 

[Keith&Co.]

If the CEOs suddenly faced a wage ceiling, they would just structure their compensation so that X% was wage or salary, and Y% was a corporate advancement incentive, and Z% was a strategic pre-productivity ijvestment. And worker wages would drop.

 

[skepticalbip]

^ ^ ^
That or they could do what politicians do, set up a tax exempt foundation that they control that the company could contribute to. The company would get a tax write off for contributing to the charity and the CEO would have control of the contribution.

 

[Sajara]

I don't see it as a wage ceiling, although I am sure the CEOs would. The ability to make more money would still be there. The bigger question would be if the regulation of the over-all compensation would be worth everything else.

I didn't think about the charity route. That is a smart loophole...and yet so morally wrong in many ways.

So how do you fix the system when the game is rigged so entirely for the rich?

 

[ZiprHead]

This is a damn good subject for discussion. I applaud you for bringing it up.

 

[Sajara]

Thanks ZiprHead.

In full disclosure, I am a Manager who makes considerably more than the manufacturing workers around me. I've managed to get about a half of them a raise of $1.50 an hour but not without push-back. It is like upper-management doesn't see the line workers as people, but instead as robots to push harder and faster, which goes so completely against my lean manufacturing background of working smarter, not harder.

Forcing the pay ratio is the only way I see things changing. Either that or somehow dragging the stock-holders out of the picture...but they come first over anything else in most American companies, which man is that backwards.

 

[Keith&Co.]

I don't see it as a wage ceiling, although I am sure the CEOs would. The ability to make more money would still be there.

...but only by giving more to the workers.
That would decrease their shares of the profits, no matter if it's a dollar increase.
If the rich thought the workers deserved bigger shares of the profits, we wouldn't have to have this conversation.

 

[Trausti]

I don't see it as a wage ceiling, although I am sure the CEOs would. The ability to make more money would still be there.

...but only by giving more to the workers.
That would decrease their shares of the profits, no matter if it's a dollar increase.
If the rich thought the workers deserved bigger shares of the profits, we wouldn't have to have this conversation.

So when profits are down, do the workers get a corresponding reduction in their pay?

 

[DBT]

I don't see it as a wage ceiling, although I am sure the CEOs would. The ability to make more money would still be there.

...but only by giving more to the workers.
That would decrease their shares of the profits, no matter if it's a dollar increase.
If the rich thought the workers deserved bigger shares of the profits, we wouldn't have to have this conversation.

So when profits are down, do the workers get a corresponding reduction in their pay?

Possibly, if the income ratio represented a fair share of profits and wealth. The same applying to Management, no bonuses without profits, no increases in pay or perks or benefits...elements that are accountable in the pay scales of Management.

 

[marc]

An alternative would be to undo the Reagan tax cuts. Before that the top tax bracket, equivalent of around $3 million in today’s money I believe, was paying over 70%. While not a cap, it would encourage the company to do other things with its profits, like reinventing in the company, possibly increasing workers pay.

Of course we would still have to deal with loopholes like mentioned above.

 

[ZiprHead]

I don't see it as a wage ceiling, although I am sure the CEOs would. The ability to make more money would still be there.

...but only by giving more to the workers.
That would decrease their shares of the profits, no matter if it's a dollar increase.
If the rich thought the workers deserved bigger shares of the profits, we wouldn't have to have this conversation.

So when profits are down, do the workers get a corresponding reduction in their pay?

It did where I used to work.

 

[Sajara]

In a previous company, this is sort of how it worked. The profit share was set as a bonus; however, the average worker had a 5% bonus and the president had a 20% bonus...plus a bonus from the parent company that the average worker did not get, so yeah, still greatly skewed.

I know the argument against the rich paying such high taxes was that they were not taxed equal to their representation in congress (they still technically have one vote), but I am wondering if that is really true given that the average congress-person's net worth is over one million dollars according to what I was reading recently.

If we talk taxes, then a slight change in the tax bracket rates could put almost 50 billion back into the middle classes and only see minimal reduction in wealth by the rich (I can go into the tax brackets if people are interested too).

Right now the top bracket is paying 39.6% for any pay over the previous bracket (without loopholes factored in).

To Keith&Co's point, the rich feel it is acceptable to get paid that much (they earn it right...) when the vast majority would say it is not acceptable. Nothing will change without forcing them to change and we can't force them to change without better representation in congress to do so.

By the way, when saying 'force', I mean political force, not violence. Violence is the last refuge of the incompetent.

 

[Canard DuJour]

There'd be a constant loopholes arms race, but that's not good reason not to try. Otherwise, it'd be macroeconomically beneficial IMO.

 

[Sajara]

There would have to be a mass propaganda campaign of labeling all companies that are using loopholes as being un-American. It could start right now with the ones who send their money over-seas in tax havens.

We should also increase the Buy-American requirements from 50% to 75%...

 

[Rhea]

I would like to see a tax structure based on how above average your workers are. So, for CEO and op management, You pay 90% taxes if the bottom quartile of your employees make minimum wage to 3x min wage. UNLESS your combined compensation is below 10X of those wage earners. So if you’re starting up a company and taking no significant salary, you can pay the same taxes as them. But if they make less than 3x min wage, and you make 100X that, it’s 90% for you. If the bottom quartile average makes up to 5x min wage with the lowest paid worker at at least 2x, and you make 100X them, your tax is reduced to 50%. If you make 50x - 100x the average of the bottom quartile, your tax rate goes down to 40%. And if you make less than 50x the lowest quartile average, your rate will be only 35% for anyy compensation above $500,000.00.

That’s convoluted, and would be refined, but basically, if you exploit workers to make hundreds of time what they produce for you, then you need to pay for their welfare. If you’re not exploiting them by either paying a solid wage or by not taking much yourself, you don’t.

 

[Loren Pechtel]

The biggest effect would be to greatly increase outsourcing. You would end up with management teams contracting out everything.

 

[DBT]

The biggest effect would be to greatly increase outsourcing. You would end up with management teams contracting out everything.

Would contractors be a cheaper option? Would quality be maintained when contractors come and go, not having any attachment to the business or its goods and services?

 

[skepticalbip]

The biggest effect would be to greatly increase outsourcing. You would end up with management teams contracting out everything.

Would contractors be a cheaper option? Would quality be maintained when contractors come and go, not having any attachment to the business or its goods and services?

It could be cheaper in the short term but my experience is that outside contractors and consultants don't understand the business well enough to make nearly as good business decisions as those who work there. I would expect a lot more business bankruptcies in the long term.

 

[steve_bank]

My guess is it could have far reaching unintended consequences. Stock markets, profit motivated innovation. It would probably require a general restructuring of the sysm. ]

Getting a business off the ground requires a lot more than most realize. It is based on risk reward. Sart limiting the reward for risk and investment and personal initiative goes down.

The worse case scenario was the failure of Soviet economics.

China changed to allow for personal initiative and reward.We could easily end up with far more problems than we have today.

 

[Testy Calibrate]

Jesse Ventura recently had a clip going around the internet talking about a maximum wage.

I don't like that idea because it limits the drive to do more. That being said, I like the idea of a maximum wage ratio. The biggest issue people have is that CEOs in America are making 380 times (on average) the salary of their average worker. If you said that the average ratio had to be 100 (as an example), a CEO could still make an obscene amount of money, but they have the option of making more by paying their workforce more. In other words, your lowest paid employee makes $20,000 a year, the CEO can make $2,000,000. If the CEO wants to make $3,000,000...then they need to pay all of the lowest paid employees $30,000.

My question to you all would be, why wouldn't this work? Be my devil's advocates please!

The first thing I could see is that you would have to make the rule be based on total compensation and not just salary (as the CEO's typically make much more off stock options anyway). I would also think you would need to define it as lowest paid full time employee and highest paid full time employee....but then companies would turn around and only have part time employees (are there laws against that?).

I could see some corporations leaving the US based on this, but more importantly I could see them outsourcing many more jobs to try to get their lowest worker's pay up as all the lower paid jobs would be shipped out of the company...so we would have to include outsourced jobs as part of the lowest paid employees (which might then force jobs back...probably not I know). I'm not sure how to deal with this portion yet and would have to think it through more.

What I would also see though is that the American Middle Class (AMC) would grow and when the AMC grows and has spending power, the economy does well. As the economy does well, more American jobs would be created (my company only hires when we can't meet customer demand...not when there are tax breaks). Customer demand is driven by people with money to burn that want a product. This would then drive the ability for the CEO's to pay their employees more and make more money themselves. AMC does well, everyone does well.

Thoughts?

don't know but I think of a massively progressive tax on wealth, say, 90% of all assets over some ridiculously high number, say, $100m every 5 years or so would be a good idea.
I