Today, the CEO of a major company does nothing but plays golf and sips scotch all day while being paid thousands of times more than the miners that find the raw materials for his company’s products, hundreds of times more even than the hardworking salesmen a few floors below. Since 1970 labor wages have stayed relatively stagnant, with respect to inflation, while executive compensation has skyrocketed. Yes, that CEO worked very hard to get to where he was, and yes he deserves to be compensated for seniority, and yes this is a capitalist system where a person can pay themselves whatever they want with the only risk being the collapse of their own business--but a thousand times more? Think about that. Is that person’s education, experience, etc make his one day of “labor” worth 1,000 days of an unskilled worker’s labor? That’s almost three years.
I’m not going to suggest a system where everyone is paid the same--some people work harder than others and that is an acceptable fact of labor. But I do think that we can more reasonably compensate everyone’s labor, and doing so will raise the general standard of living and help close the income gap. To do this, I suggest (hypothetically of course), that we institute a system of “work credits” which laborers (CEOs and miners alike) earn in place of their salary. These work credits then either replace money entirely, or more likely, are redeemable for a set amount of value. For example, a miner might get one credit per hour and and a CEO might get 120. Still a large gap that shows their different pay-grades, but not ridiculously large. Lets see how the math breaks out:
There are many ways to conceptualize this, but I’m going to set the minimum wage of a full-time worker to be the US census stated poverty level: $11,491 (this is est. for 2011). So if we break that up into 8 hours a day, 5 days a week, 50 weeks a year:
$11,491/(8*5*4)hrs = $11,491/2000 hrs = $5.75/hr.
Therefore our work credits will be worth $5.75 each. Just as a matter of interest, this is $1.50 less than the current federal minimum wage level. Now, we have to give credit where it is due and grant skilled workers more credits based on what education/training/experience they have. To try and keep this on the ground, let’s examine another profession that seems to have about the right pay for its prerequisites: an auto-mechanic. Mechanics, on average, in the United States make $34,406 a year. This is far above the poverty line, but it is a tame 4x as much, rather than the outrageous 1000x we see among corporate executives. To be a mechanic, generally either an apprenticeship or a technical school is required. How many credits does that give our representative laborer? We are assuming he/she works the same number of hours as our other laborer:
$34,406/2000 hrs=$17.20/hr
That works out to be almost exactly 3 work credits per hour. Technical school has added two more credits per hour to this laborer’s salary. So, we can say technical schools add two credits to one’s salary. How about a four year college? It costs more than a technical school generally, lets go ahead and double the credit bonus. A Bachelor’s degree will get you 4 extra credits. Now someone who has gone through all that will make a yearly salary of $57,500. This is a little north of the average college graduates starting salary (currently $46,000). How about graduate school? Let’s give one extra credit for a Master’s degree and three extra credits for a PhD. Now a laborer with their Master’s degree makes $69,000 a year and a PhD makes $92,000.
The beauty of the system is you can add credits for anything you deem worth compensation, the only important thing is that these attributes are transparent and consistent. This should be centralized; individual firms will not be able to decide whether someone deserves more credits unless that employee qualifies for more due to something in the central code. Obviously, laborers would receive more credits for experience and company loyalty. Fractions of credits can get messy and might lead to defeating the entire point, so lets award one more credit per hour for three years, another after four years, another after five years and so on. Now, a mechanic who has been working for 25 years will be making $115,000. A PhD would be making $149,500 after 25 years, and a masters would be making $126,500. The interesting thing is, because education takes up so much time that could have been spent earning money, after 25 years, the two professionals are going to be making similar amounts of money, and their lifetime earnings are going to be close.
Let's get back to our executive. She should be paid well. This is an entrepreneur who has invested her entire life into a dream and it has become a success. How much will our work credit system pay a person like this? Is it enough to still incentivize people to innovate and create and become a successful CEO? Imagine a 50 year old executive, she did not go to college but started the dream on her own and has been running her own business since she was 22. She gets the original 1 credit, plus 5 credits for experience over 28 years (she will receive a sixth in 5 years). That's only 6 credits; and only $69,000 a year. But we have not yet scratched the surface of what other credits the person would receive. In a system where work credits were used, entrepreneurial ability would undoubtedly be worth a significant number of work credits, probably only available to those who are proprietors of their own company. Let’s give 5 credits for that. Then, finally, some measure of stress and responsibility should grant work credits. for lack of a better idea, I am going to give 1 credit for every 10,000 employees a person is responsible for. If this CEO’s company employed 2,100,000 people (this is the size of Wal-Mart, one of the largest employers in the world), our executive is entitled to 420 work credits extra. Now lets do the final calculation:
1+5+5+210 = 221credits
Sources:
- http://www.census.gov/hhes/www/poverty/data/threshld/
- http://www1.salary.com/Automotive-Mechanic-I-Salary.html
- http://www.simplyhired.com/a/salary/search/q-college+graduate
I can follow your argument (even if i may not agree with it) until you get to people who start their own business. Who is giving out these credits? Or determining who gets them? I would imagine that entrepreneurial ability is subjective. And when a company is just getting started there is not a set way to get a salary. In an established company there is a pay roll and money to pay people, so the system works. But the first few years of a small business are usually operated in debt. The starter(s) of the company have to take on loans or have other investors, and can spend a year or two growing their business before they have a profit. Who would pay their "work credits" during those years? Most small businesses fail in the first ten years. Do their owners still get paid for entrepreneurial ability if the company doesn't survive?
ReplyDeleteAnd I would also make the argument that every Masters or Doctorate degree is not the same. Is the student graduating from Harvard at the same level as the person who got a 4 year degree from the local community college? And there is the difference in subject. There is a scarcity of people who have completed hard science degrees, and having a high salary out of school should encourage people to fill in the gap despite how difficult it is to get those degrees. If they were all worth the same then people may go to those subjects even less. Or be less willing to do four years of medical school.
I agree that CEO compensation is too high for the overall social well being of the country, and I think this is an interesting way to look at it, but in my opinion this would end up in being even more red tape and fighting a huge central system (run by the government?) in order to negotiate a salary.
You make some valid points, and I am happy to heartened by your comment since "interesting idea" was really all I was hoping for. But I would clarify my idea on some of your objections:
ReplyDeleteAs far as who pays out/defines work credits, this would have to be done by a central, uninterested organization. (yes, this is antithetical to our economic system, it didn't work for communist Russia, is insensitive to market forces. Yes, all this is true, but I'm just spit-balling here, and capitalism as it stands isn't perfect either.)Loans and investment into a new business or entrepreneur would be made the same way, and the person would probably still not make a profit or any income in the early years because they would still be compensating their operating employees. I agree that entrepreneurial ability and how much a person had to struggle to make themselves is a very, very hard thing to quantify and standardize, but I don't think it invalidates the system. A successful business owner will have the right to compensate themselves very well under the system, just not to an extreme. I am already rethinking my "number of employees" idea, but some such relatively objective marker can be used to measure success.
As for the different value of different colleges, this is something that I did think about when I originally wrote this idea. Certainly a Harvard Bachelor's entitles one to more salary than a city college degree? In today's world, a BA from Harvard will get your foot in the door most places, but you still have to back it up with at least a little bit of real skill. On the other hand to turn a city college Bachelor's into a high paying job right out of college takes real charisma and dedication and a whole lot of luck. The disparity in our education system is a huge part of why the income gap exists in the first place. It would look strange at first, but I feel as if leveling salaries for all college grads would eventually level educations, whether that brings the general standard up or down is for another discussion.
We already have a system of work credits. It is called "money." I am not claiming the way money flows in our country is already acceptable, but I don't believe your proposal is feasible, or a net positive even if it was possible.
ReplyDeleteWhat you seem to be calling for is a creative dual-currency compromise with one currency being the capitalist system we have in place today and the other currency being a system that can't quite be called socialism, because the government doesn't own national businesses, but is similar in some respects because the Federal Government would manage and dispense the hourly salaries of everyone in America. Your goal is to distribute resources more evenly and create a fairer economy, a noble goal.
One example of how this would be a problem is that the value of each currency would fluctuate, causing a giant exchange market of people selling their "work credits" into dollars and vice versa, trying to get rich off the fluctuations the same way that people take advantage of international fluctuations in currency. This is one more tool the rich could use to get richer, and one that poor people would not have access to, as they would not have sufficient capital to partake even if they were given the education to understand such a system, which they most likely would not be given anyways.
Simply put, a rich person could sit at his computer trading his dollars for work credits back and forth and fluctuating himself richer and richer, essentially fucking your system in it's own ass and creating a new tool for the same people to remain the 1% without doing the nitty-gritty.
There would also be two, not one, currencies that would be subject to possible collapse, at least doubling (if not multiplying on a grander scale) the chance of a financial crash.
Asking for the government to manage the hourly salaries of every person in America is a ridiculous, completely unfeasible notion, unless they owned all of the nation's businesses themselves, a la socialism.
Even if this idea was great it would still not be politically feasible, because people with more money would be forced to consume less resources, and would act against this politically. People with money control the collective opinions of the under-educated masses, so even if this was a good idea, it could never get through any congress, much less our Congress.
I also disagree with your first sentence, claiming that all CEOs "do nothing but play golf and sip scotch all day," for obvious reasons, mainly that it came straight from your ass.