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This is pretty interesting. On Sunday, voters in Switzerland will be casting a ballot to determine whether executive compensation should be shackled to the wages of the lowest earner in a a given company. Known at the "1:12 Rule", the highest paid executives in a company would be allowed to earn no more than 12 times the annual income of the lowest paid worker in the same company. To put it in US banking terms, it would be like limiting Lloyd Blankfein's all-in comp to $312,000 because some poor bastard in the mailroom is only pulling down 26 grand a year.

The funny thing is, this referendum has a halfway decent chance of passing in Switzerland, where individual voters have much more power than they do almost anywhere else on Earth, and there is a palpable dislike for the widening wealth gap between the highest paid and the lowest paid.

Quote:
Despite its high standard of living, Switzerland is a generally egalitarian country, increasingly unhappy with rising wealth inequality as wages of executives balloon while those of low-skilled workers lag.

"After the Second World War the growth of salaries and wealth was more or less parallel,"JUSO President David Roth told Reuters. "In the last ten years one small part of society took the big profits and the majority ... had less in their pockets."

The trend is catching on all across Western Europe. Spain is trying to enact the same policy, and French president Hollande is pushing a 20:1 ratio on companies where the French government has an ownership stake (which is pretty much all of them in one fashion or another). There are even calls for similar schemes in the US.

I'm just playing Devil's Advocate here, but which do you consider the more likely scenario in the event a measure like this passes: that CEO's will be willing to accept a fraction of their current comp, or that the wages of rank and file workers would increase dramatically? I'm not saying I'm in favor of something like this (because I'm certainly not), but it strikes me that this sort of social engineering might actually work.

Who would get hosed? Shareholders. Employees would love it because they'd make more money. This, in turn, would likely lead to better customer service, so customers would be happy. But shareholders would get the shaft because the bulk of the profits they've been collecting would be paid out in wages.

And then there's the obvious question that always comes up in this debate: how do you justify paying one person 450 times the salary of another person? Can you really make the case that Person A is 450 times as valuable as Person B? (Don't even attempt it, because you can't.) So at what point does the earnings gap become abusive? Is it 12:1? I'm pretty sure it isn't. 20:1? I don't think so. 100:1? Now you're getting closer.

What do you guys think? Would the world be a better place if the highest earners made no more than 12 times the lowest earners? Would it affect your work ethic? If not for something like this, how do we solve the wealth inequality problem?

It'll be interesting to see what comes out of Geneva this weekend...

Comments (203)

  • Cruncharoo's picture

    Edmundo Braverman wrote:
    Can you really make the case that Person A is 450 times as valuable as Person B? (Don't even attempt it, because you can't.)

    450 times valuable to a company or as a person in general? The former is easily justifiable while the latter is a little more murky.

    Because I enjoy being pedantic and looking at fringe cases I will say a pediatric cancer doctor (or any person who reasonably contributes to society)is 450 times as valuable of a human being (at least) as a serial rapist. I would argue it's higher/not even measurable since the serial rapist serves 0 purpose.

    For a company, the case you presented of that of a mail clerk is the perfect example. This person could be replaced by roughly 25% of the world's population, or even a robot, while the CEO of a major corporation is maybe one of a hundred thousand people on the planet who could fulfill that role. Not to mention to a shareholder that person is exponentially more valuable than the mail clerk.

    I understand your sentiment though, and agree that no one is that much more valuable than another when it comes to rights being afforded to them. There are definitely people in finance/other fields who are 450+ times more valuable than others, especially since it is so quantifiable.

    This to all my hatin' folks seeing me getting guac right now..

  • In reply to Cruncharoo
    Edmundo Braverman's picture

    Cruncharoo wrote:

    Because I enjoy being pedantic and looking at fringe cases I will say a pediatric cancer doctor (or any person who reasonably contributes to society)is 450 times as valuable of a human being (at least) as a serial rapist. I would argue it's higher/not even measurable since the serial rapist serves 0 purpose.

    You're assuming they're not the same person.

  • PuppyBackedSecurities's picture

    Wouldn't every company then just get their labor from a third party? Ie. C-suite becomes the only employees in the company. But the company then contracts with a third party provided who supplies labor. Problem solved.

  • PuppyBackedSecurities's picture

    Wouldn't every company then just get their labor from a third party? Ie. C-suite becomes the only employees in the company. But the company then contracts with a third party provider who supplies labor. Problem solved.

    On second thought junior comp at buyside firms might skyrocket...

  • In reply to PuppyBackedSecurities
    PuppyBackedSecurities's picture

    PuppyBackedSecurities wrote:

    Wouldn't every company then just get their labor from a third party? Ie. C-suite becomes the only official employees in the company. But the company then contracts with a third party provider who supplies labor. Problem solved.

    On second thought junior comp at buyside firms might skyrocket...

  • In reply to PuppyBackedSecurities
    happypantsmcgee's picture

    PuppyBackedSecurities wrote:

    Wouldn't every company then just get their labor from a third party? Ie. C-suite becomes the only employees in the company. But the company then contracts with a third party provider who supplies labor. Problem solved.

    On second thought junior comp at buyside firms might skyrocket...


    exactly, or they just make the upper echelon a subsidiary or some type for the company as a whole.

    If I had asked people what they wanted, they would have said faster horses - Henry Ford

  • leveragedsell's picture

    I think anybody with a general understanding of economics knows that this would create wild distortions and, political affiliations aside, is pretty much a horrible idea.

  • In reply to happypantsmcgee
    Edmundo Braverman's picture

    happypantsmcgee wrote:

    PuppyBackedSecurities:

    Wouldn't every company then just get their labor from a third party? Ie. C-suite becomes the only employees in the company. But the company then contracts with a third party provider who supplies labor. Problem solved.

    On second thought junior comp at buyside firms might skyrocket...

    exactly, or they just make the upper echelon a subsidiary or some type for the company as a whole.

    Who's gonna run the third party employment pool? That's gonna take a CEO making only 12 times the lowest paid worker.

  • In The Flesh's picture

    It's nobody's business how much you choose to pay your people.

    Metal. Music. Life. www.headofmetal.com

  • heister's picture

    The idea is idiotic, I am willing to guess that at most a handful of people who support this have given any consideration to what this would do to destabilize economies of large cities. If you have the heads of companies making only 12 or 20 times the lowest paid employees. When you consider that many of them have mortgages that cost more in a year than they would now be earning.

    Follow the shit your fellow monkeys say @shitWSOsays

    Life is hard, it's even harder when you're stupid - John Wayne

  • TNA's picture

    Gotta love Europeans. Most lavish welfare society and still trying to make things "fair".

    Lower rung worker wages aren't going to increase simply to bring CEO comp back up. They will simply do something that either skirts the law or violates its spirit. That or simply leave Switzerland. Real pretty country, but I am sure there are other places that would be much better HQ's.

    I'll never understand people who obsess about CEO comp. Low run workers make shit, have always made shit, and always will make shit, because they do something easily replaceable. What is sad is all these laws meant to help workers do nothing but fuel the desire to outsource or automate. Just like jacking the minimum wage for fast food workers in the US would do nothing but usher in robots making us food. Which would be utopia as my Cosi bread would always be in the bag, always be fresh and soft and I would be happy.

    On a side note I am sure low income robots wouldn't be playing a knock out game so please bring on the automation.

  • In reply to Edmundo Braverman
    heister's picture

    Not necessarily. No one will get health care anymore because everyone will be an independent contractor. You don't have to work for a temp agency be a contract worker.

    Follow the shit your fellow monkeys say @shitWSOsays

    Life is hard, it's even harder when you're stupid - John Wayne

  • Thurnis Haley's picture

    Edmundo Braverman wrote:

    I'm just playing Devil's Advocate here, but which do you consider the more likely scenario in the event a measure like this passes: that CEO's will be willing to accept a fraction of their current comp, or that the wages of rank and file workers would increase dramatically?


    Neither. The lowest paid employees will be forced to become outside contractors and the CEOs will make the same amount of money.

  • In The Flesh's picture

    @"Edmundo Braverman": If you don't like what they're paying you, you can go work somewhere else. The Swiss seem to have trouble with this.

    Metal. Music. Life. www.headofmetal.com

  • In reply to Addinator
    Edmundo Braverman's picture

    Wealth inequality isn't a problem until it is, and by then it's far too late. History is littered with the tales of plebeian uprisings where the wealthy oligarchs lost everything, often including their lives. There is definitely a tipping point.

  • In reply to Cruncharoo
    WalMartShopper's picture

    nm, eddie said it already.

    If the glove don't fit, you must acquit!

  • IlliniProgrammer's picture

    That does it I'm selling everything and buying Berkshire Hathaway.

  • In The Flesh's picture

    Also, if the Swiss are so obsessed with their idea of equality, how come they don't take away some of Roger Federer's money? How come no one ever complains about him? Or the pop stars who have mansions there, like Tina Turner or Phil Collins?

    Metal. Music. Life. www.headofmetal.com

  • Edmundo Braverman's picture

    @"In The Flesh" I have the luxury of not participating in the job market in any traditional sense, so I'm content to just watch from the sidelines. But to suggest that job hopping and moving around is a simple matter for the average person just isn't true.

  • In reply to Edmundo Braverman
    bl00211's picture

    Edmundo Braverman wrote:

    In The Flesh:

    It's nobody's business how much you choose to pay your people.

    I think that was pretty much the Confederate party line in 1861.

    Thank you for allowing me to read the dumbest thing I will read all day before noon.

  • In reply to Thurnis Haley
    bl00211's picture

    Thurnis Haley wrote:

    Edmundo Braverman:

    I'm just playing Devil's Advocate here, but which do you consider the more likely scenario in the event a measure like this passes: that CEO's will be willing to accept a fraction of their current comp, or that the wages of rank and file workers would increase dramatically?

    Neither. The lowest paid employees will be forced to become outside contractors and the CEOs will make the same amount of money.

    The other option would be to create a new class of stock that has no voting rights and give them to management. Then you just pay large dividends on these shares only to get their comp up.

  • TNA's picture

    Gotta love how we are talking about an uprising because of wealth inequality in Europe. They tax the living fuck out of everything and they still talk about "inequality".

    Any uprising will be the dirt poor and uneducated against the middle class and the rich. One only has to look at the USA to see how we have handled that. For profit jails and Homeland Security in tanks.

    Go watch Les Miserables to see how the poor used to be really treated. Jail for stealing bread. Never able to work. No rights. Real boot on your neck shit. Nothing like the cake walk we have nowadays. It is a joke that we are still talking about revolts when the real issue is pure laziness or low IQ.

  • txjustin's picture

    THis is a democRAT dream in the US. Of course they would exempt themselves from the law, but they'd kill babies to get this passed.

  • In reply to Edmundo Braverman
    happypantsmcgee's picture

    Edmundo Braverman wrote:

    happypantsmcgee:
    PuppyBackedSecurities:

    Wouldn't every company then just get their labor from a third party? Ie. C-suite becomes the only employees in the company. But the company then contracts with a third party provider who supplies labor. Problem solved.

    On second thought junior comp at buyside firms might skyrocket...

    exactly, or they just make the upper echelon a subsidiary or some type for the company as a whole.

    Who's gonna run the third party employment pool? That's gonna take a CEO making only 12 times the lowest paid worker.


    No one runs it. Its like Wal-Mart Executive Services LLC and the employees are the Walton Family, hired by the corporation at large.

    If I had asked people what they wanted, they would have said faster horses - Henry Ford

  • In reply to Edmundo Braverman
    IlliniProgrammer's picture

    Edmundo Braverman wrote:

    Wealth inequality isn't a problem until it is, and by then it's far too late. History is littered with the tales of plebeian uprisings where the wealthy oligarchs lost everything, often including their lives. There is definitely a tipping point.

    Eddie what about the role of technology in all of this?

    Military technology is a lot different than 1917 Russian technology, even different than Vietnam. And my sense is that it has skewed in favor of capital.

    I think a revolution would have to be peaceful and would have to occur through a national strike and civil disobedience. Irony of ironies, it would have to look like Atlas Shrugged, but perpetrated by competent middle-class and blue collar workers rather than a group of billionaires.

    Quote:
    Who would get hosed? Shareholders. Employees would love it because they'd make more money. This, in turn, would likely lead to better customer service, so customers would be happy. But shareholders would get the shaft because the bulk of the profits they've been collecting would be paid out in wages.

    I'm buying Berkshire Hathaway and Google.

  • In reply to bl00211
    Anihilist's picture

    It's called satire you ass hat.

    People demand freedom of speech as a compensation for freedom of thought which they seldom use.

  • In The Flesh's picture

    @"Edmundo Braverman": I think one of the biggest reasons there aren't more rich and successful people is that we won't get out of our own way. This pernicious "I'm just as good as you!!!" philosophy that the Swiss have embraced has been robbed of all integrity and is being used as a sledgehammer to yank everyone down to your greatest fear: mediocrity.

    Metal. Music. Life. www.headofmetal.com

  • sb842's picture

    financial firms with highly paid people would probably outsource as many low level jobs as possible. i think glencore would rather contract out their janitors than cut trader pay

  • TwoThrones's picture

    Would love to see them implement this.

  • In reply to IlliniProgrammer
    Edmundo Braverman's picture

    Technology's role is a really interesting point, and one I'll probably explore in a post soon. Lately I've been wondering at what point does money and wealth become completely irrelevant (due to the march of technology)? I mean, assuming we're able to achieve singularity, what need will you have for material wealth if you only exist on a hard drive?

  • TNA's picture

    I love going historical on shit. Either way I get what they are trying to do, but they are going about it ham fisted. Switzerland has a pretty high standard of living. Not sure why they are so focused with bringing down comp. At what point do we say the poor have it pretty well and that they are taken care of?

    I mean at what point do we stop vilifying the rich?

  • In reply to TNA
    duffmt6's picture

    TNA wrote:

    Go watch Les Miserables

    The movie or the Broadway show? Pls advise.

    "For I am a sinner in the hands of an angry God. Bloody Mary full of vodka, blessed are you among cocktails. Pray for me now and at the hour of my death, which I hope is soon. Amen."

  • Pypi's picture

    Guys, let me try and take a completely different approach to all this. I don't mean to say that that is how the Swiss are looking at this, it is just me trying to understand it in my own way.

    So what they are saying is, that someone shoudn't be compensated with money that much more than someone else in a corporation. You guys, correctly, are pointing out that based on the difficulty and quality of what they do, and given the rarity of the upper individual's skills and abilities too, the compensation difference acurately represents that gap. I completely agree.

    But let me take a completely different approach now, and I know that for most us here, living in North America, being in finance, having grown up with Capitalism, being exposed to the hyper materialistic culture and having a measure of success and happiness strongly caused by or correlated in the best case with the amount of money one has, it would be very difficult to understand this. I see this as the very, very, early development of something so different and progressive that for most of us it would be incomprehensable beacause of our current principles, mindset and understanding of motivation, success, and happiness.

    What if in a 1000 years this actually leads to the CEO that does the extremely risky, intellectually challenging, almost irreplacable work because he is motivated by their willingness to better a corporation that creates products or services that in turn better the quality of life of others. What if they get paid with money and they use at as means to exchange to satisfy the lower levels of Maslow's pyramid, and we all know that it doesn't take much to satisfy your basic needs. What if after that $312,000 that Lloyd would make, he would attain all the reward and happiness from the fact that he has used his other worldly intellect and ability simply because it was so rare and useful, and helping others makes him happy enough that he doesn't need the tens of millions of dollars to be rewarded to him.

    I am talking about completely changing our ethical and moral spectrum, and of course that has to happen on a large global scale, where the people that possess unique abilities, do things for others and feel rewarded by the happiness they bring to others, and that reward is enough after the point where them and their children are taken care of. I am talking about a time where you take risks and use your entreprenurial spirit because you want to better yourself and other people just because you feel it's right, and because you enjoy the challenge, not because you expect a monetary reward in the billions that would yield you lots of material possessions, but because you felt it was the right thing to do, simple as that.

    If this phenomenon of the moral, ethical, and value spectrum changing is present in everyone, than this would make sense. Everyone would contribute as much as they can because they feel rewarded by things other than money. Money would still be very useful, as it is a great means of exchange for goods and services to a point. But when it is the primary reward tool, than we have a reality like ours, and let's be honest, we have been on a downward moral and ethical spiral for quite some time now and the sad thing is that we can even imagine that any given CEO would feel rewarded by anything else other than money, that he would be so unmotivated otherwise that he would never want to use his super human intellect...

  • In reply to Edmundo Braverman
    IlliniProgrammer's picture

    Edmundo Braverman wrote:

    Technology's role is a really interesting point, and one I'll probably explore in a post soon. Lately I've been wondering at what point does money and wealth become completely irrelevant (due to the march of technology)? I mean, assuming we're able to achieve singularity, what need will you have for material wealth if you only exist on a hard drive?


    The singularity is smarter than us, better than us, does not need us, and decides it hates us.

  • adapt or die's picture

    That Euro/Liberal pussy Piers Morgan is going to jump all over this.

    There will probably be a CEO comp cap in the US within the next 15 years. It's sad to watch this country slowly become socialist as the voting demographics completely run away from the GOP. Oh well, when the large companies and brains leave the US the Dems will finally get what they wanted.

  • In reply to TNA
    Flake's picture

    TNA wrote:

    Swiss are all for equality until it comes to Nazi gold and paintings.


    Love it.

    Under my tutelage, you will grow from boys to men. From men into gladiators. And from gladiators into SWANSONS.

  • In reply to adapt or die
    krauser's picture

    Why look for euro pussies, Bill Maher probably got a raging hard-on as soon as he heard about this. That moron is now talking about getting single-payer healthcare in California.

    And america stopped being capitalist a long time ago. Maybe in a few sectors, mostly the tech scene etc is there some semblance of capitalism. The rest is all about access and/or lobbying.

  • In reply to Pypi
    barbariansatthegates's picture

    Pypi, is pretty accurate in his assertion that we are looking this through our current moral lens. In 15-20 years, who knows what the cultural climate will be like?
    While there is no magic number, as everyone will disagree on what the multiple should be, it seems the Swiss are pretty conservative in their estimate.

    PE is the new black.

  • Tehraio's picture

    I was recently in switzerland for a year (now in paris),
    my 2 cents: companies will be always be represented locally if they have an incentive to do so.
    I like the way the Swiss go about their politics because it gives people a say in many cases which affect their society. Other countries will leave those decisions to their law makers and It's also understandable.

    is the work provided by a CEO worth 450 more to the economy than what a "low" skilled worker does? i say it's debatable, some will agree, some clearly won't. However I find it great it's up to the people who live in this country to decide if they will allow that kind of compensation gap. obviously culturally speaking, this wouldn't fly in the US but I'm interested to find out how this will play out in a country where the financial industry is pretty big.

    I am also certain that companies will find ways to compensate their highest paid through other channels. It reminds me of Nissan and Renault CEO (Carlos Ghosn) who makes most of his money as Nissan CEO not as Renault, so what would limiting his Pay as a CEO in France do? It will automatically increase it in Japan.

    going back to what I said in the beginning, companies are always going to be there if there is money to make. even if the pay of their CEO is limited I doubt this will dramatically impact their ability to do business locally. At the end of the day it's what matters imo. if the laws are so strict, and there are virtually 0 loophole, and they cant escape it: they will hire the best they can find who's willing to get paid 12x the smallest salary at the company, and let's be honest they will always find someone.

    on another note, there is the case of someone who creates a company and is at the same time the CEO of the company, pretty sure if such policy was to take place there would have to be some sort of exception to the rule? I don't know, because the CEO at the end of the day is an employee but the founder/creator/shareholder isnt. But I guess thats another story.

  • In reply to Pypi
    krauser's picture

    Pypi wrote:

    What if in a 1000 years this actually leads to the CEO that does the extremely risky, intellectually challenging, almost irreplacable work because he is motivated by their willingness to better a corporation that creates products or services that in turn better the quality of life of others. What if they get paid with money and they use at as means to exchange to satisfy the lower levels of Maslow's pyramid, and we all know that it doesn't take much to satisfy your basic needs. What if after that $312,000 that Lloyd would make, he would attain all the reward and happiness from the fact that he has used his other worldly intellect and ability simply because it was so rare and useful, and helping others makes him happy enough that he doesn't need the tens of millions of dollars to be rewarded to him.

    I am talking about completely changing our ethical and moral spectrum, and of course that has to happen on a large global scale, where the people that possess unique abilities, do things for others and feel rewarded by the happiness they bring to others, and that reward is enough after the point where them and their children are taken care of. I am talking about a time where you take risks and use your entreprenurial spirit because you want to better yourself and other people just because you feel it's right, and because you enjoy the challenge, not because you expect a monetary reward in the billions that would yield you lots of material possessions, but because you felt it was the right thing to do, simple as that.

    If this phenomenon of the moral, ethical, and value spectrum changing is present in everyone, than this would make sense. Everyone would contribute as much as they can because they feel rewarded by things other than money. Money would still be very useful, as it is a great means of exchange for goods and services to a point. But when it is the primary reward tool, than we have a reality like ours, and let's be honest, we have been on a downward moral and ethical spiral for quite some time now and the sad thing is that we can even imagine that any given CEO would feel rewarded by anything else other than money, that he would be so unmotivated otherwise that he would never want to use his super human intellect...

    Not trying to be a jackass but this is not new. Refer to : http://en.wikipedia.org/wiki/Communism#Marxism

    Great theory, fails in reality.

  • In reply to krauser
    Anihilist's picture

    While he is quite annoying, you see his speech on feminization of America? I thought it was pretty interesting.

    People demand freedom of speech as a compensation for freedom of thought which they seldom use.

  • IlliniProgrammer's picture

    Perhaps a more conservative approach would be to bring back 60-70% tax rates on incomes over $2 million per year, with a 40% rate on dividends and capital gains.

    I don't think it's fair; I'm not sure it's pragmatic, but it takes care of the problem better than a 12x wage cap. CEOs didn't make huge salaries back in the '70s because it wasn't pragmatic to pay them that much.

    The US can't be the first country to move on this, but if we get 40% of the developed countries to go along, and we all impose penalties on foreign corporations and foreigners who try to avoid this tax regime, we can make it happen.

    Then we can spend the proceeds on developing new sources of non-CO2 producing energy.

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