One other interesting point from Desai, Brief, and George’s paper, on the problems with relying on the actions of individual corporations to stop the crazy CEO compensation problem we’ve got:
J. P. Morgan declared that top executives’ compensation should be capped at twenty times the wage of an average worker. However, unless all organizations adopt this rule, capping an executive’s wage will put a firm at a competitive disadvantage.For instance, consider the case of Whole Foods Market Inc. In the 1980s, the salary of its CEO was pegged at 8 times the pay of the average worker. However, when its executives were persistenly made strong offers by its competitors, Whole Foods Market relented and raise the cap on executive compensation to 19 times that of the average worker. Other firms, such as Ben & Jerry’s, Herman Miller Inc., and Costco Wholesale Corp., that have tried to implement similar strategies of capping executive excess have also had limited success.
That said, it is worth noting that the success that many major baseball and other sports leagues have had in imposing a limit on their teams’ salaries is impressive. If businesses were to emulate them and simultaneously adopt such a policy, they may be more successful at limiting executive pay.
In other words, For Some Choices We’ve Gotta Choose Together.
