Readers of More Spock know that examining ways to reduce the wealth gap is one of my interests. I recently saw a headline that shared the CEO of a large bank received a 19% pay raise in 2021. I’d bet a substantial sum that there are policies at that bank that make it virtually impossible for a manager to give an employee an increase of even half that percentage. In 1965 average CEO pay was 21 times average worker pay. By 2020, that ratio had climbed to 351 times. This trend has to reverse or we’re eventually going to see greater revolts, reminiscent of the early 20th century.
Unfortunately, Republican policies seem to be geared around protecting the rich and Democratic policies seem to be geared around keeping poor people poor and dependent on government. The more logical solution is to keep the economic system that is generating all the wealth in place, but encouraging behavior changes at both the top and the bottom.
Let’s start with the top. Tim Cooke earned $265 million in 2020. That’s more than 6,000 times more than a typical full-time employee at an Apple Store making $20 per hour. Likewise there’s Chad Richison at Paycom. He earned $220 million while people I know who work for Paycom earn around $50k – 4,400 times less. Dan Price, CEO of Gravity Payments made headlines in 2011 when he slashed his own salary by 93% and raised the minimum starting salary at his company to $70,000, even for jobs with market rates closer to $40,000.
I’m not suggesting Dan got it exactly right. Some of the criticisms of his approach are legit. But he at least got it partially right. What if Tim Cooke and Chad Richison announced that they were going to limit their own pay to 1,000 times the annual rate of their company’s lowest paid domestic workers. Their annual salaries would still be $40 million. The trickle down effect of this along with the pressure for other CEOs to follow would have significant impact on companies’ ability to improve pay at the bottom.
I once worked with a guy who had a clever response whenever someone would disclose that they had a surgery scheduled. He’d reply, “Whatever they’re charging you, I’ll do it for half-price!” Of course my friend was not a surgeon and in no way qualified to perform any medical procedure more than boy scout level first-aid. But I guarantee you that there are plenty of individuals who are well qualified and smart enough to do Tim Cook’s job who would happily take it for $40 million per year.
If corporate boards were to begin using benchmarks, like 1,000 times more than what their lowest paid workers make, CEOs would only be able to raise the cap on their own base by raising base pay at the bottom. If average pay rises from $40,000 to $50,000, then the CEO’s cap raises to $50 million.
I don’t know if 1,000 times is the right number and haven’t stress tested that multiple against various company sizes and different industries, but I feel strongly that corporate boards need to start looking at creative ways to constrict the gap between the highest and lowest paid workers in their companies. When the CEO gets a 19% raise and the workers get 3%, the gap only continues to widen.