Gaming The System: The Danger Of Giving CEOs More Than They Are Worth

When I talk about wealth inequality, which is often, some like to make the argument that societies should let people earn whatever they can get.

If you can get it, you’ve earned it.

Except that isn’t necessarily true.

In fact, if there is a situation in place that allows certain individuals to abuse the system, I think it is in the interest of society to seek justice. This is precisely the situation we are seeing in the United States with CEO pay. They are gaming the system to the vast majority’s detriment.

Eleanor Bloxham, a contributor at Fortune Magazine, sets the scene:

Did you get a decent raise last year? How about 28% without having tochange jobs, vie for a promotion or outperform your peers?

If you were a CEO of an S&P 500 company last year and your pay only went up 28%, then sorry, but half your peers did better than you.

Keep in mind, the pay of the average worker went up about 3 percent in 2010. It wasn’t because we are lazy and unproductive.

After laying out seven ways CEOs manage to get the pay they do, Bloxham continues:

Higher CEO pay is likely not going to benefit you. It means fewer dollars in the coffers for your raises, no better performance for your company, and more unemployed workers, rather than new hires who could help you with your growing workload.

The idea that inequality is dangerous to America’s future is not a fringe idea. Bloomberg.com reported recently on the comments of Federal Reserve Governor Sarah Bloom Raskin:

Federal Reserve Governor Sarah Bloom Raskin said the financial inequality resulting from stagnating incomes for most Americans and rapid growth in wealth for the richest 1 percent is hindering the U.S. economic recovery.

“This inequality is destabilizing and undermines the ability of the economy to grow sustainably and efficiently,” Raskin said today to a forum in Washington sponsored by the New America Foundation. The disparities help “drag down maximum economic growth and are anathema to the social progress that is part and parcel of such growth,” she said.

After digesting all this information, I find it quite unpalatable. In fact, I find myself echoing the thoughts of Steve Hochstadt:

The risky behavior of the very rich on Wall Street put millions of Americans out of work in our recent mini-depression. Now the rich bankers at Goldman Sachs, which has made billions in profits since it was bailed out with our tax dollars in 2008, have decided to send thousands of high-paying jobs overseas. The biggest American corporations are sitting on more billions in profits over the past few years, and are unwilling to hire the workers they laid off.

How much richer do the rich need to be before they begin to create jobs? How much more of our national wealth will the rich grab for themselves before the average American taxpayer says “Enough!”?

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