CEO-Worker Pay Inequality Needs to be Mitigated

challenges-for-small-businessesAs wages for most workers have stagnated over the past couple of decades, and as the cost of living has increased, several implications have manifested themselves. The standard of living for a minimum-wage worker has declined in relativistic terms. On the flip side, Fortune 500 CEO pay has increased dramatically, reaching an average ratio of 350 to 1. At a time when many Americans are struggling to afford many basic necessities, this has turned out to be exorbitant.

There is no doubt that executives should be compensated fairly for the service they provide and the stress they handle. It takes a special person with a diverse skill set to run a multinational corporation, but this compensation has to take into account some level of reason. When Ron Johnson was making 1,795 times his average employee’s pay, this was not a model of logical saliency. A higher level of responsibility is a good barometer for higher compensation, but this must be kept within limits.

A better model would incentivize workers to work harder and also help provide for their basic needs. Reliance on items such as food stamps would decline, and the economy would be boosted by increased spending amongst these workers who gain higher earning power.

Employees should get higher pay at the lower levels, and this pay should be reassessed regularly in order to keep up with inflation. Stock options should be held as viable rewards to employees; this encourages loyalty to the firm and also compensates the employee.

None of this needs to be done by breaking the bank either. If employees are making more, executive pay can be lowered to a more realistic amount. More earnings can be retained and recirculated in order to serve the good health of the firm, and dividends can be paid out in longer time frames (many corporations do not even pay dividends).

It’s time we addressed questions of equity, because America remains the land of opportunity in many of our citizens’ eyes. We owe it to them to help actualize this perception, and logical legislation is the way to address this aim.

http://money.cnn.com/2012/04/19/news/economy/ceo-pay/

http://www.bloomberg.com/news/2013-09-17/ceo-to-worker-pay-ratio-disclosure-proposal-to-be-issued-by-sec.html

http://www.huffingtonpost.com/2013/04/30/ceo-to-worker-pay-ratio_n_3184623.html

http://www.reuters.com/article/2013/09/18/us-usa-sec-ceopay-munis-idUSBRE98H0EX20130918

Parth Shah