Pros and Cons - Debbie Newman, Ben Woolgar 2014

Salary capping, mandatory
Section D. Economics

This debate is not unlike the debate about limiting bonuses, but salary caps have a less direct impact on incentive structures for executives, so this debate is more about the morality of earnings. Pay for CEOs has risen particularly rapidly in recent years, and certainly much faster than average earnings. To put it in context, the average American CEO earns US$9.7 million a year, or 3,489 years of salary for the average worker.

Pros

[1] Salaries should reflect what people are actually worth, but these salaries simply cannot. It is just not possible that, in any meaningful sense, a CEO is worth 3,500 times more than an ordinary worker. This pay must be brought under control, because it goes against basic principles of equality.

[2] Salary rises constitute a ’collective action’ problem. Corporations do not really think that their CEOs are worth as much as they pay them, but the need for ’big name’ corporate leaders means that they compete to pay more. A cap stops that spiral.

[3] Pay has lost any sense of contact with the moral worth of the job being done. It is a disgrace that bankers and footballers earn millions, while teachers and nurses struggle to make ends meet.When placed in stark comparison like this, we can see that those salaries cannot be justified.

[4] Keeping salaries closer together would encourage the sense that ’we’re all in this together’. It would improve social cohesion, and so reduce crime and improve community spirit. It is the symbolism of high-earning individuals that makes people think that the social system does not help them.

Cons

[1] Salaries do reflect the profit making of their recipients. Someone who is very good at banking genuinely produces millions of dollars in value. That is the nature of the whole underlying economic structure, not salaries themselves.

[2] This is not a ’collective action’ problem; it is competition. If firms genuinely do not value their employees that much, then they can let them go and get someone less expensive. That is how a free market in labour works.

[3] Nothing about this policy redistributes wealth to those doing socially valuable jobs. Money not earned by top CEOs simply goes into corporate profits, which in turn go to investors; those are not people who really deserve it, but those who already have large fortunes (often not self-made ones) to invest.

[4] Salaries are not the main source of wealth for the super-rich. They earn their money from investments or companies they own; salary caps may reduce the number of very wealthy CEOs, but do nothing about uber-wealthy oligarchs or property magnates, who are the real symbols of the failure of capitalism.

Possible motions

This House would cap executive salaries.

This House believes that the best paid employee in a company should earn no more than 10 times the wage of the lowest paid employee.

Related topics

Failing companies, bailing out

Bonuses, banning of

Utilitarianism

Capitalism v. socialism

Marxism

Inheritance tax at 100 per cent