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We need a maximum wage: High pay to the executive class is both counterproductive and unnecessary…

In Around the web on January 24, 2012 at 5:32 am

“Comfort the afflicted, afflict the comfortable.”
The Guardian

The Great Pay Robbery

The successful bank robber no longer covers his face and leaps over the counter with a sawn-off shotgun. He arrives in a chauffeur-driven car, glides into the lift then saunters into an office at the top of the building. No one stops him. No one, even when the scale of the heist is revealed, issues a warrant for his arrest. The modern robber obtains prior approval from the institution he is fleecing.

The income of corporate executives, which the business secretary Vince Cable has just failed to address, is a form of institutionalised theft, arranged by a kleptocratic class for the benefit of its members. The wealth which was once spread more evenly among the staff of a company, or distributed as lower prices or higher taxes, is now siphoned off by people who have neither earned nor generated it.

Over the past ten years, chief executives’ pay has risen nine times faster than that of the median earner. Some bosses (British Gas, Xstrata and Barclays for example) are now being paid over 1000 times the national median wage. The share of national income captured by the top 0.1% rose from 1.3% in 1979 to 6.5% by 2007.

These rewards bear no relationship to risk. The bosses of big companies, though they call themselves risk-takers, are 13 times less likely to be sacked than the lowest paid workers. Even if they lose their jobs and never work again, they will have invested so much and secured such generous pensions and severance packages that they’ll live in luxury for the rest of their lives. The risks are carried by other people.

The problem of executive pay is characterised by Cable and many others as a gap between reward and performance. But it runs deeper than that, for three reasons.

As the writer Dan Pink has shown, high pay actually reduces performance. Material rewards incentivise simple mechanistic jobs, such as working on an assembly line. But they lead to the poorer execution of tasks which require problem solving and cognitive skills. As studies for the US Federal Reserve and other such bolsheviks show, cash incentives narrow people’s focus and restrict the range of their thinking. By contrast, intrinsic motivators — such as a sense of autonomy, of enhancing your skills and pursuing a higher purpose — tend to improve performance.

Even the 0.1% concede that money is not what drives them. Bernie Ecclestone says “I doubt if any successful business person works for money … money is a by-product of success. It’s not the main aim.” Jeroen van der Veer, formerly the chief executive of Shell, recalls, “if I had been paid 50 per cent more, I would not have done it better. If I had been paid 50 per cent less, then I would not have done it worse”. High pay is both counterproductive and unnecessary…

Original article with references here


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