When it comes to improving living standards and opening opportunities for all, capitalism is comfortably the best system thus far discovered by mankind. But it has two dreadful deficiencies. One is what Warren Buffett calls “the tyranny of the womb” – the unfair advantage afforded offspring of the wealthy. The other is excessive executive remuneration.
These twin demons provide plentiful ammunition to those who want to replace the system with destructive alternatives. And as focus grows on the great income divides, their voices are growing ever louder. Quentin Wray offers some food for thought.
Quentin writes: “Executive pay, that hardy annual of outrage generation, is back in the headlines. The latest Deloitte report on the subject was released this month and it makes for fascinating reading. Like all good research, it raises as many questions as it does answers.
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There is undoubtedly going to be a great deal of much-needed debate about iniquities of a system that lets CEOs earn as much in a day as workers do in 16 months. Most commentators say this is a societal problem that will cause unrest. They believe pay gaps reflect race and privilege as much as performance and that nobody can be worth that much money – valid points and largely true.
Beneficiaries of the status quo – by its nature a far smaller group than critics – will stay behind barriers of fearsome secretaries and spin doctors. Only if pushed will they testify from the altar of neoliberalism and markets, trotting out how skills shortages are to blame. And while increases in executive remuneration have outstripped inflation by a large margin, they track and even slightly underperform gains achieved for shareholders.
I’m somewhere in the middle on this. I can understand paying Ronaldo $93m a year to kick a ball and look buff in his undies, shelling out $303m for Paul Gauguin’s Nafea Faa Ipoipo painting or stumping up $38m for a 1962 Ferrari 250 GTO. Such things are all very rare.
But the crux of the issue is that management and leadership skills are not.
While there are some notable exceptions, I’ve met enough who occupy the C-Suite to know the rise to the top is often driven by luck and membership of the lucky sperm club (membership criteria: right place, right time, right family). And then for shareholders in multi-billion dollar companies, a few million here or there would only make a tiny difference to their returns. Which is probably why they don’t really care.
As unpalatable as it may be, exorbitant executive pay is not the root cause of inequality.
It is just a symptom. But one which begs the question: if executives were paid a “reasonable” multiple of the lowest paid worker, would employment rise and society-wide inequality fall? Or would dividends merely increase by the slightest of margins? Would it actually solve anything?
No. The problems we face are not due to a few obscenely large pay cheques. They are caused by structural problems in our economies. Curbing the pay of a few rich people may make everybody feel a little better. But that’s about as far as it goes. It is not a sign of a society serious about tackling inequality.
To defeat unfair deprivation society needs to do a better job of fixing a broken system. Assisting the poor through better education and decent housing, health care, social services and employment opportunities is only the beginning.
Politicians can force the rich to pay for interventions through higher taxes, but their short-term attention should primarily be on what will make the lives of the many better rather than what will make those of the few worse.
I doubt they will, though. After all, loud outrage is far easier to pull off than good policy.”
Quentin’s cynicism is shared by many. But wherever you might sit on this core issue of our times, there is no denying that pressure for change is building. Witness the unlikely victory of Emmanuel Macron in France.
