I hope you realize that in companies who provide decent benefits things like janitorial services are already outsourced, since they do not wish to cover health care for them. Think what you will of that, but don’t make this a negative for the proposal. That horse is out of the barn.
Or you get the Wal Mart game (similar to a lot of fast food operations) - you don’t let people get 40 hours per week, so that they can be kept “part time” instead of full-time employees.
So several ways to keep people out of the math:
Outsource
Part-time
Contractor
Offshore
Participating in the loss would be fine if the CEOs got to participate at the same level they get paid. During losses few people get raises, and thus lose against inflation. Some people do get laid off. Some people, for instance at HP, take pay or hour cuts. There are a few CEOs who take paycuts in bad times, but in my experience mostly at companies who are more equitable in general. And CEOs get fired - but get a lot bigger parting gifts than the average worker. Again, look at HP. Morons who trash stockholder value do quite well when fired. And there are plenty of examples of CEOs who trash stockholder value and lose nothing.
How do you define what a job is worth? If pure market value, you need to be sure to avoid collusion between companies to keep wages down, which does not have to happen in smoke-filled rooms. Valuing a job based on productivity would be good - but in the 2000’s productivity rose but almost all of it went to the top, not the middle class. And we are talking middle class here, not just minimum wage people, though they suffer the most.
Please cite where prosperity does not trickle down.
If you look at poverty levels in the US from 1940’s to today, they have significantly diminished.
Look at developing countries like Brazil, India, China, etc. As investment in businesses has increased, primarily driven by foriegn investment, there is a burgeoning middle class and wages are in the rise.
Countries that tend to have greater economic freedom have higher average incomes and a higher income of the poorest 10%. There also tends to be higher literacy, longer life exptancy, and lower infant mortality.
The United States used to be in the top 5 of countries with the highest economic freedoms. We are now 18th.
I always chuckle when someone confuses shareholders with owners. Sure it is theoretically true, but just recently do the supposed owners even get to vote on executive compensation, and then the vote is purely advisory. And we know how many people run for each board position also. Elections for premier of Cuba and board elections are pretty damn equivalent. Most CEO changes except for retirements look more like coups than one President moving out and another moving in.
For UHC, how did he do relative to the competition? How much of earnings increases came from the rise in healthcare costs and how much from any action on his part. I’m not accusing him of being responsible for that rise, but it would be interesting if you did. Healthcare reform required a cut in overhead which the companies seemed to be able manage smoothly. Does he deserve a fat paycheck for presiding over a fat and inefficient company?
This guy might deserve every penny. But for every Gates there is a Ballmer. And the supposed market in CEOs treat them more or less the same.
Per their proxy, the S&P 500 returned 2.1% in the same time period - so the return was not due to the general mark.
Peer comparison according to analysts is not as dramatic - but still pretty good:
Obviously comparison to the S&P give only a very broad view of the movement of the market as a whole, which is even less relevant to a health care company than for an average company. Your link doesn’t give a lot of details about the places where it is better than peers, but I certainly don’t see anything justifying massive deltas in executive compensation. I don’t have anything at all against UHC - I have them for my health coverage, and in terms of service they are miles ahead of Blue Cross. But I’d expect industry changing performance for that kind of pay. If Jobs got it, I could almost see it. Here? Nah.
Yeah - they used to publish a table in the proxy showing performance (in total return to shareholders) over 5 years vs both the S&P 500 and a peer group. UHC uses the peer group for determining compensation (they talk about that in the report from the comp committee in the link to the DEF 14 A I tossed out earlier), but I could not find peer performance comparison.
Very frustrating - but I have not been working in executive compensation for several years I admit.
This whole “workers deserve to share in the profits” hasn’t really been answered.
Let’s say that I have $50k and decide that I can revolutionize the world with my widget. I take my $50k into a half a million dollar bank loan and start cranking out widgets. I’m wildly successful, and I become a billionaire in 5 years. Some of you seem to suggest that it is only right to “share” these profits with the assembly line guy that applied to my company on monster.com. After all, he helped me achieve my success.
Is the reverse true? If my business fails miserably and I am forced into bankruptcy and lose my home, should the assembly line guy be on the hook for part of my tab? Let me sleep on his couch?
If not, why not? Why is it a one-way ratchet?
It’s not a one-way ratchet. You are ignoring the other relevant parties (eg. government). A business owner has all sorts of tax advantages and loopholes that even a profit sharing employee doesn’t. I don’t really support the suggestions in the OP, but I do think the wage inequality problem needs to be addressed. We now have a situation where government subsidizes profitable employers by enabling them to pay what would otherwise be below market wages. Government does this by providing benefits to the working poor like food stamps, tax exemptions, and emergency medical care. When there is a implicit understanding that government will step in to provide those things, employers don’t have to via wages. I am all for a robust social safety net, but I have a problem indefinitely subsidizing food costs (among other things) for people working full time because their wildly profitable employer doesn’t want to pay a living wage. Especially when some of these companies, like Walmart, explicitly assist employees in applying for those benefits.
Thanks for a thoughtful response. I just want to point out that there is nothing in this plan that suggests capping compensation–just setting limits for the range of compensation within the company. Not quite the same thing.
I agree with much of this in the sense of “that’s just how things work”–now. This discussion is exploring how things could be made to work differently. Specifically, this notion that some people have such unique talents that they cannot be replaced by someone else–there may be such people, but I expect they are exceedingly rare. I’d call the bluff of the rest of them.
Many employee owned companies do this already, through employee stock ownership plans, i.e. employee owned companies.
In my mind it is the best nature a large corporation can have. It puts every employee of the company on the same page. They all have interest in ensuring the company runs efficiently and successfully in the long term, and also all have the obvious self interest of maintaining a happy and well paid work force.
So, if you wanted to reward your widget installer with both the success and risk of failure, then simply transition your company into an employee owned enterprise.
Oh, and I forgot cooperatives. Those area awesome as well. Small scale collectivism is where its at, imo. Governments tend too strongly towards bureaucracy, inefficiency, and mission creep. Rich capitalists tend too strongly towards personal greed, excess, and grabs for power.
I try to only do business, as much as possible, with employee owned businesses and cooperatives.
Shouldn’t have to be small scale. I think that the Unions missed a chance during the auto bailout - they should have bought GM themselves and created a cooperative.
The great Robber Baron Leland Stanford was in favor of these:
My understanding is that for some large companies the peer group is carefully chosen to produce the desired result. So we’d need to see what the peer group is. My source is a number of columns from Gretchen Morgensen which gave the peer companies and why they were chosen. I don’t think UHC was specifically covered.
I have no doubt that the compensation decision was made using documented guidelines. But we all know that if you get to make the rules, you can get any result you want.
No one is saying that this guy gets an equal share. But are you absolutely certain that he didn’t see something in the process that helped you make your widgets more cheaply? That he never saw a bad widget coming down the line and did something about it? And conversely, if he doesn’t give a crap about how much money you make, since he gets none of the benefits of extra productivity, why should he go out of his way to get rid of that bad widget, since there is probably a QA person down the line who takes care of it. Sure your line will be making thousands of widgets that will get junked before the QA guy sees them, but why should he care? He’s clearly just a lackey.
First, very few companies with profit sharing have execs with much skin in the game. They come in, they get given a big signing bonus and a bunch of options which they can’t lose on, and if they screw up they get kicked out with more money.
Second, they guy loses by getting fired. But that isn’t all of it. I was working when these bonus things became popular, and the reason for them was not altruism, but that profit sharing bonuses were used in place of pay increases. When times were good employees got more money - but the increase did not carry over to next year as a base for future raises. When times were bad the company could cut payroll expenses more or less automatically. So profit sharing plans are not done out of altruism, but also for sound business reasons.
Profit sharing also goes for everyone. When times are good you can give raises to your top guys, and some profit sharing. But if you didn’t reward them when you were making money, why would they stay around when you start losing money. They’d figure you screwed them, so they’ll bail at the first opportunity. They may do it anyway, but the chances of them staying for someone who was greedy are far less.
Small is a bit relative. I meant not states, basically. A collective of tens of thousands is still small compared to millions. At that scale they can still die off if run poorly, so you still have some of that free market incentive, just not quite as much. 
And I agree that would have been an ideal outcome during the bailouts.
Highest to lowest is a bit silly. Capping pay at 100 times median salary is a bit better but even then what happens is that companies start contracting out their more menial tasks.
Cleaning services, have your mailroom run by a contractor, have your secretarial pool run by a contractor, etc.
In the end, its not the pay disparity between management and labor that causes wealth disparity so much as it is how income is distributed between labor and capital.
Like I said, this happens already without a cap. In any case, contracting out these jobs probably wouldn’t move the median salary that much. There are not that many janitors, and low wage manufacturing is contracted out already.
Simple:
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A human requires some minimum about X of food, shelter, etc.
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Therefore, X sets a natural minimum on the cost of even the most unskilled human labor (the amount of resources set by biological constraints must be supplied, or the laborer, and hence the labor, will cease to exist), just as (for example) the gravity well sets a natural minimum on the cost of launching even the most primitive satellite (the minimum amount of energy set by physical constraints must be supplied, or the satellite will fall back to earth instead of going into orbit).
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Ethics requires one to pay the costs of one’s choices, insofar as this is possible. (The “multi-billionaire” observation in dataguy’s comment should not be misconstrued, deliberately or otherwise, as some sort of crude class-warfare rhetoric, but simply as a statement of factual evidence re the “this is possible” caveat.)
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Ergo, if one is unwilling or unable to pay X for labor to do some job, the ethical option is to allow the job to go undone or do it yourself. The unethical option is to pay Y < X and foist the difference off on someone else.
QED.