Me and a mate of mine were downing a few Carlton Cold’s watching Australia disassemble Zimbabwe in their World Cup pool match when we started discussing a recent news story which saw a corporate executive get a $32 million golden handshake when he left his post at Colonial Bank. My mate thought this was far too excessive, to which I responded that the market demands these sorts of pay outs in order for banks to compete with each other in order to lure the top CEOs to their company. While I conceded that the current economic system is not perfect, I argued that it was the best we have. My friend agreed that Communism is never going to work, so my challenge to my friend was to come up with an economic system better than the current one, that would prevent such handsome pay outs, but not damage market competition, and retain the most efficient use of resources as possible.
Here is what he proposed:
Basically, you have a ‘Central Labor Committe’ (CLC) that is a branch of the government that decides the relative weight of each job. Take a bank, for example, the CLC would decide that the manager’s work warrants six times the payment of a regular bank clerk. On the surface, it would look like this would completely destroy market competition, however my friend (Brad), came up with an amendment; if the bank wants to pay the manager more money to out compete other banks, they can, by giving ALL of their employees a proportional pay increase, relative to each other. I then pointed out that this wouldn’t allow employees to seek pay rises, destroying the incentive to work harder than other employees. The response was, that for each job, there could be different ‘pay levels’. So, our manager, if he wanted to seek a pay rise, could work harder and seek a pay rise to “Manager: Level 2”. However, if he slacks off at this level, he could slip back to the pay level of “Manager: Level 1”.
Basically, each employees’ salaries at any given company must be directly proportional to their co-workers. The CLC would decide how many more times (3X, 4X, 5X etc…) a given job is worth over another. So, let’s say the manager is entitled to 10% of a company’s weekly wages allowance, the company could decide to pay him more money, but it would result in a pay rise to every other employee at the company, unless, that manager was promoted to a different pay level for excellent work.
Thoughts? Would this be better than our current system?