What Time is it for Executive Compensation?

1/6/12


As a professor in an Industrial and Labor Relations school, I do not have an abundance of colleagues on the right. Since arriving at Cornell, I've been exposed to a number of "pressing" issues that I never saw as a problem. The latest one is "inequality" or, in particular, "income inequality." I even had one of my close colleagues recently argue for tax increases on the "rich" more from the standpoint of reducing inequality than from a desire to close the deficit. According to his position, inequality is a moral issue; it is simply wrong to let some people have/spend so much more than others.

Obviously the income tax debate (the need for the rich to pay their fair share) exemplifies this. However, inequality tacitly drives other political issues. Take the recent debate about the "payroll tax reduction." First, note that the payroll tax reduction (as opposed to an income tax reduction) is targeted at the lower levels of the income distribution (and was not available to those at the upper end). Second, the House bill froze the pay of federal workers while the Senate and President's bill raised taxes on mortgage companies, and thus, those who own homes. Therefore, this debate was also about redistributing wealth from homeowners to government employees. In the big picture of health care reform, a key underlying issue was to reduce inequality in health care (if you don't believe me, why would the bill include significant penalties for "Cadillac" plans). My guess is that if you look deeply into some of the controversial policies put forward over the next few months, you will see at the root a desire to reduce inequality.

I raise this issue only because of the impending silly season of political campaigning with what is already emerging as a class warfare theme. As companies design their executive compensation packages, those concerned about inequality will increasingly focus on the optics of those plans. So, I guess my warning is, do you want your executives' pay to be the example used in a stump-speech by the inequality-obsessed? Maybe, to quote "The Preacher" from the Old Testament book of Ecclesiastes, "To everything there is a season, and a time for every thing under heaven...a time to seek, and a time to lose; a time to keep and a time to cast away..." (Ecc. 3:1, 6). Which time is it for your executives?