Swiss capping ratio of CEO/peon pay

[wolfie]

This thread has a VERY high potential of being told "take it to Fratching", so I figured I'd be proactive.

Good move by the Swiss. I've heard of quite a few studies which have found that the "flatter" the income pyramid, the greater a country's overall prosperity (studies had looked at both geographically distributed "snapshots", and single countries over an extended period). It's no accident that people see the span between WW2 and Vietnam as a "golden age" in the U.S. - an average worker could support a family and have enough left over for a few luxuries. What we're seeing now is "a rising tide lifts all yachts" - jobs being moved offshore, 2-income couples struggling to get by, while CEOs are raking in obscene amounts of cash.

I can see a couple issues the Swiss need to fix:
1) Put the brakes on companies leaving because of this (CEO wanting more money but not wanting to raise entry-level wages). Of course, since the major industries in Switzerland have value added BECAUSE they're located in Switzerland (does "Austrian chocolate" or "Italian watch" conjure images of quality?), that's probably less of an issue than for other countries. Also, Swiss banks are world-renowned for privacy BECAUSE they are subject to Swiss law - move out and they're out of that environment.

2) What about multinational companies, franchises, and conglomerates? Does this apply only to employees based in Switzerland, or does their entire operation have to meet the ratio? Does an individual McDonalds' have to meet the ratio at the restaurant, with the ratio being taken separately at corporate, or is the CEO capped at 12 times what a burger flipper makes? If it were applied to North America, would staff at CP Hotels and CP Rail (or Bridgeport machine tools and Cessna aircraft - both divisions of Textron) be treated as being part of the same company, or different companies, for purposes of the ratio? Does this mean the waterboy for a footbal team has to earn at least 1/12 the salary of the star quarterback? Is Tom Cruise's pay for a movie limited by what the actor playing "3rd private on the left" earns?

I'd say the Swiss need to couple this to a tariff on products imported from countries that don't have a similar law.

[Aethian]

Those are good questions and I'm wondering if they were thought of there since we have a bit of different mind set here. I'm hoping that if a company has a franchise there they have to follow the rules. I kinda hope that companies that are homed there have to follow the rules as well. Might see some places over here either suddenly move or their workers get raises.

[gremcint]

honestly I've been thinking about something like this for years, it really should be in place. There is no reason for someone at the top to make 100,000,000 a year when they only pay the bottom people minimum wage.

[Aethian]

honestly I've been thinking about something like this for years, it really should be in place. There is no reason for someone at the top to make 100,000,000 a year when they only pay the bottom people minimum wage.

When Mr. Meijer had full control of the store and what employees were paid...the employees enjoyed working there. They had a good wage, the stores were kept in optimal staff levels, cleaning supplies were auto ordered, and a ham/turkey every Christmas with a bonus.

Then came a new COO and CFO... Bye bye to all those cause it was determined the upper eschelon weren't making enough. Meijer's still makes money but employee status faction is practically nill.

[Gravekeeper]

Then came a new COO and CFO... Bye bye to all those cause it was determined the upper eschelon weren't making enough. Meijer's still makes money but employee status faction is practically nill.

Yes, its not like their pay hasn't increased by 95% in recent years in one of the largest if not the largest hikes in history. You can't expect these poor CEOs to only own three houses, can you?

[Aethian]

Yes, its not like their pay hasn't increased by 95% in recent years in one of the largest if not the largest hikes in history. You can't expect these poor CEOs to only own three houses, can you?

Well yes GK, but that happened when Mr Meijer started to step down and pass the stores to the idiots who run it now. And then when Mr. Meijer passed away....well there went the company.

[Andara Bledin]

They've got better proposals going than capping top tier pay.

Though, I do agree that the top tier gets paid a ridiculous amount and it shouldn't be tolerated, I don't believe that this is the most effective or proper way to deal with it.

[s_stabeler]

To be fair, Andara, while a cap is indeed rather a blunt instrument, it does effectively prevent companies from getting around the law.

to answer a few questions:
franchisees: the idea is that frontline staff get 1/12th of the income that the CEO gets, so I would say yes, the CEO should be limited to 12x the income of burger flippers.
Conglomerates: Same. Hell, it might even discourage conglomarates which may not be a bad thing
football teams: unsure, but probably.
movies: Probably not, actually. Star actors are functionally independent contractors, since they can more or less pick and choose the movies thye take part in.

[Chromatix]

I think it's a great idea, similar to one I've had myself but haven't been able to pitch to anyone who would be able to get it implemented.

I think the fundamental point is that employees at *every* level of the business need to be paid according to how much they contribute to the business' success. I don't believe a CEO *ever* contributes a thousand or even a hundred times as much as a front-line employee. Twenty times is more plausible, but pragmatically a 100:1 ratio will be easier to implement.

The corner cases listed by wolfie are, however, very important to address. Let's take a quick stab at it:

McD's is the archetypical franchise. Individual restaurants are technically separate businesses, while the overarching corporation sets brand and product policy, organises logistics, and tackles various legal matters. In a very real sense though, the head corporation would have no purpose (and no profits) without the front-line employees at the restaurants. So clearly, it is desirable for a franchise relationship to imply an unbroken management hierarchy for the purposes of determining pay ratios.

The star of a movie tends to spend a lot more of his time on a particular movie than a basic extra. The ratio would thus be determined by the (uncapped) ratio of time spent as well as the (capped) ratio of relative importance to the success of the movie. It is, however, crucial to base it on actual time spent by the employee in the employer's service - whether it is determined on an hourly or daily basis - rather than screen time in the final cut.

Divisions or wholly-owned subsidiaries are a pretty clear-cut case. Functionally they are the same company, even more so than franchises, even if legally there is a distinction. The ratio therefore applies all the way across them - the CP executives would have to pay janitors in both divisions, whether aboard trains or in hotels, equally fairly.

This can easily be extended to multinational corporations. Even if there is no jurisdiction over the pay of foreign-based employees, their pay levels can be used as the basis for increasing or capping the pay of local employees. Pressure on the foreign operation can thus be exerted indirectly. There is a corner case even here - there may be local employees belonging to a chain with a foreign fat-cat CEO *and* a sweatshop in Bangladesh, with the pay ratio between the two exceeding 10000:1 - in this case, the acceptable pay rate would be at the "collar" relative to the CEO, not at the "cap" implied by the sweatshop.

I'm probably not alone in thinking that team sportsmen are horrifically overpaid, just as much so as CEOs in the more traditional corporate world. I don't see anything wrong with imposing a ratio here as well. A good team with loyal fans would still be able to offer quite high pay to its sportsmen, but it would have to include the underlings who operate their stadium in a share of the wealth.

The question is, where *do* we draw the line? I think the line has to be drawn at arms-length contracts based on results, rather than on time and materials. So an individual contractor hired on a personal daily or hourly basis would still be subject to the ratio relative to his (temporary) employer, while a contract to supply a million widgets at $5 per widget would not impose such a ratio between the consignee's CEO and the widget manufacturer's production workers - or vice versa.

[Chromatix]

There is a counterpoint here, which should also be addressed. Raising wages has typically been used as an excuse for employing fewer front-line workers, so as to keep the payroll the same. Increases in the minimum wage were blamed for worsening the Great Depression of the 1930s by greatly increasing unemployment, ie. the number of citizens with no income at all rather than a merely inadequate income.

Enforced pay ratios are different, however. Imposing a ratio does not force a rise in employee wages, if the business is unable to sustain it. It would in that case force a reduction in executive-level pay instead, bringing it in line with actual company performance. For precisely that reason, the ratio must include bonuses and other forms of compensation, so that they cannot be used as loopholes for CEOs to circumvent the cap.

[Greenday]

I think the fundamental point is that employees at *every* level of the business need to be paid according to how much they contribute to the business' success. I don't believe a CEO *ever* contributes a thousand or even a hundred times as much as a front-line employee. Twenty times is more plausible, but pragmatically a 100:1 ratio will be easier to implement.

No? You don't think a job that can only be done successfully by a few is worth tons more than a job that any unskilled person can do? This law may flatten out net worth in Switzerland but it's just going to drive away skilled business owners in turn hurting the economy.

[Duelist925]

No? You don't think a job that can only be done successfully by a few is worth tons more than a job that any unskilled person can do? This law may flatten out net worth in Switzerland but it's just going to drive away skilled business owners in turn hurting the economy.

Worth more, certainly.

Worth the disparity currently going on? Fuck no.

And lets wait and see just how Switzerlands economy turns out before making statements like that.

[Greenday]

Worth more, certainly.

Worth the disparity currently going on? Fuck no.

So how much more is a job worth that not many people can seemingly do successfully versus a job anyone old enough to work can do? Because 20 times seems like a laughably small number to me. They guy running the whole business is worth tons and tons more than the ridiculously easily replaceable worker.

[Gravekeeper]

No? You don't think a job that can only be done successfully by a few is worth tons more than a job that any unskilled person can do? This law may flatten out net worth in Switzerland but it's just going to drive away skilled business owners in turn hurting the economy.

Haha, no. The position of a CEO has become such that you are paid a disgusting amount of money regardless of success or failure. There is also absolutely no shortage of people for the position. Don't confuse the fact there aren't a lot of seats with there not being a lot of candidates.

Since McDonalds are being dicks lately, lets take a look at them. Last year their CEO received 13.8 million dollars in compensation. This was a raise of 237% over the year before. Furthermore, he only became CEO in 2011. Have you ever received a 237% raise after 1 year at your job?

So he's making close to 1000:1 what a full time worker for him makes. Though at company owned locations only 20% of workers are permitted to work full time. Don't want to give them pesky benefits or anything.

Meanwhile, raising wages for all of their US employees to $9/hour would cost them a mere 1.3 million dollars a year. ( For reference the company had a gross profit of 10.3 billion last year. ).

Well yes GK, but that happened when Mr Meijer started to step down and pass the stores to the idiots who run it now. And then when Mr. Meijer passed away....well there went the company.

I didn't blame it on Mr Meijer, I was speaking in general >.>

[s_stabeler]

Greenday, there are several counter arguments i can think of.

1) CEO pay is rarely the sole reason a business is located somewhere. Normally, threats to leave somewhere are just that- empty threats. Look at what happened when a new top tax rate of 50% was introduced in the UK. ONE company left, and I believe they have since returned. So no, I don't believe that you will see a rush of companies leaving Switzerland.
2) we don't actually know how many people can be a successful CEO.Why? because the CEO is appointed by the shareholders. Which are usually dominated by Wall Street. For all we know, there could be thousands of potential CEOs that don't get a look in because they don't have the right connections.
3) 20x is actually quite a lot- if a company pays minimum wage, the cap works out to be $301,600 per year, assuming yo ignore part-timers. Considering that the US President earns $400,000 per year, then it actually sounds about right. ( if you use the argument that wages should be proportionate to responsibility, nobody should earn more than the US President, since he is responsible for running the entire country)