Time to confess our sins and do penance. Those guilty of creating excess should share the responsibility for ending it. Some giants in the compensation consulting community have spoken out in the past, motivated by a sincere sense of guilt for encouraging the tremendously disproportionate top executive pay that resulted from their prior yeoman work enabling unreasonable compensation. We too share in that guilt collectively, to the extent that any of us have been actively pleading the need to keep feeding greed.
Income inequality is a global problem with unprecedented implications for modern economies. New communications technology has raised expectations on a scale never seen before. Poverty has always existed but few of the “poor” in prior years fully recognized the extent of their disadvantage compared to the opposite extreme outliers. With electronic communications and scandal-driven global media, that has changed. The few rare high-end extremes earn outraged attention and unprecedented resentment. Nearly every political speech features some attack on those earning exorbitant incomes compared to the nominal amounts paid to the “middle class” (whatever that is).
Compensation people often find themselves enabling actions depicted as social and economic evils. For too long, exec comp consultants have faithfully and diligently rationalized unjustifiable unreasonable executive compensation. Why? Because it paid off for the advocates of new and better ways to make NEOs independently wealthy. The Waxman House report on conflicts of interest among exec comp consultants is still quite pertinent, detailing the issues better than any other source, but it has disappeared from easy public access. It may be a telling point that it is only found in the White Paper storage site at a major independent pay survey organization that does no consulting. They have no dogs in that fight; perhaps that is the perspective required for the clearest view of the problem.
One old pro in the Total Rewards community once recommended to the Senate Finance Committee COS that the tax deductibility of all compensation over $1 million should be cancelled. Let them pay whatever the board approves but tax it, he suggested. Perhaps such an attractive arbitrary cap should contain a progressive adjustment formula tied to the exec pay ratio (but I favor using the average rather than the much more difficult to compute median) of CEO over all non-officers or something. We could start with a metric higher than Peter Drucker's famous old 25 times. The Great Guru left no clear guidance on the topic, because he kept changing his suggested ratio. He was clever that way, presenting brilliant concepts while avoiding specific cookbook methods.
People keep coming back to the concept of rational limits on income distributions. One political party has been moving exactly in that direction. Grossly disproportionate pay allocations should not be sanctified with a patina of bogus rationalizations. Everything has a limit, even “excess.”
This topic will not disappear merely because the filthy rich don’t want to hear it and will buy allies as proxies who act to preserve and protect their preferential prerogatives. Note that wealth concentration is not a partisan political issue, either. Each and every political party has its millionaire and billionaire supporters who shower largess on those who would tax others. Not even the most egalitarian billionaire has offered to voluntarily increase his personal contributions to the public fisc.
Meanwhile, in the real world far from office-seeking politicians and theoretical academic economists, money is allocated for distribution to employees through schemes controlled by compensation people. In the public’s view, we are the ones who set wages, so we should have informed opinions on the value of work.
I think that compensation people have a responsibility to get out ahead of this toxic issue before infection sets in. Rather than blindly endorse the latest plan to further engorge the already economically obese super-wealthy elite few, please think about how redirecting some of those dollars could save many hard working financially-suffering families from undeserved depression and despair. Granted, some members of the total rewards profession are less free to speak their minds than others, so consensus agreement may be problematic.
In keeping with the topic of suppressing excess, I’ll stop here.
E. James (Jim) Brennan was Senior Associate of ERI Economic Research Institute, the premier publisher of interactive pay and living-cost surveys. After over 40 years in HR corporate and consulting roles throughout the U.S. and Canada, he’s pretty much been there done that (articles, books, speeches, seminars, radio/TV, advisory posts, in-trial expert witness stuff, etc.), serves on the Advisory Board of the Compensation and Benefits Review and will express his opinion on almost anything.