Well a real cap would be silly and unrealistic. The point I was trying to make is that if this hugely gross income level disparity didn’t exist (and it was a more “normal” income disparity) there would be more jobs and less poor people. That’s all.
How many US dollars are in circulation? I don’t know, but I know its certainly not infinite. That means that the more that some people have more, the more others will have less. Dollars wouldn’t start disappearing…they would end up in other people’s hands. Pretty straightforward to me.
Basically, executive salaries loosely follow an auction system.
If a company wants to hire or promote someone for a CEO job, it will have to offer a compensation package that is attractive enough to attract the best candidates.
If everyone was capped at [your figure] $500,000 then there would be no incentive for people to perform at their best.
And that would mean there might be ten people at the top of each company making $500,000. What would happen is that the top people would be frustrated because there would be nothing they could do to improve their personal situation. So, they would start taking more time off from work. The really excellent executives could “do” their $500,000 worth of work in just a couple of days per week. After that, they might devote their energy to some other effort. Maybe golf or fishing or sailing.
If the company really wanted them be there to do more of the executive stuff that they were so good at, the company would have to come up with some other incentive.
Being a CEO is more than just sitting at a big desk and having flunkies bringing them coffee. You spend hours going over all the financials of the company in great detail and asking detailed questions about each aspect of the company. If profits are down, then you need to find out why and what can be done about it. If you perceive an opportunity for new products or services or locations, then YOU have to make the decision. If there are issues regarding changing some financial arrangements, then YOU have to go to the board of directors with your proposals. If some subsidiary is not performing or if the competition is taking your customers away, then YOU have to decide why and if necessary to replace the person heading that subsidiary. And you have to do twenty of these things each day.
You may have all kinds of vice presidents, but the decisions are made by YOU, not by them. Because if THEY make decisions that don’t work out, then YOU, as the CEO, get the blame for the company’s financial flops.
If a CEO screws up, then he or she has to explain why … and had better know why … and how to fix it … or runs the risk of being replaced. Happens all the time.
If you want the title, then you have to perform.
And, there are plenty of executive recruiters out there, whispering in the ears of the directors … if an executive shows weakness, then he or she is on slippery ground … thanks to the auction system, there are PLENTY of candidates ready, willing and able to replace a CEO.
And if a cheaply paid CEO persists in doing a really excellent job, he or she might find out that some overseas company is making a tender offer for the stock of the company … and that might be disadvantageous to the employees and to the shareholders. A well-compensated CEO might have an incentive to protect the company from a hostile take-over. A Saudi company or a front for an Iranian company might offer the underpaid executive a contract, for example. Done above board, of course.
But if you were a shareholder and depended on the dividends paid by the company to live on [after all … you paid for the stock with money you had carefully saved up and then researched and invested], would you want all of that disrupted?
