Law Salary Limits: Impact on Capitalism & Poverty?

[jk22]

hi,
what do you think of a law limiting the salaries discrepancy in enterprises ? Let say the big boss cannot earn more than 12 times the lowest salary in his own enterprise.
This seems against liberal capitalism but can we call this communistic ?
Or utopistic for the poors.

 

[Ryan_m_b]

Well that's neither utopian or communism and I don't think a law directly capping pay would be a useful thing. However if incentives were made for enterprises to form or be converted into co-operative models then the pay gap between workers can be democratically agreed or at least the salary model the company will use. IIRC this is how the John Lewis Partnership operates with democratically decided pay grades (with top pay around 10 times the wage of bottom) and it's a multi billion pound company.

 

[AlephZero]

IIRC this is how the John Lewis Partnership operates with democratically decided pay grades (with top pay around 10 times the wage of bottom)

10 times? According to http://www.channel4.com/news/hutton-calls-for-fair-pay-cap-on-bosses-earnings

John Lewis restricts the chief executive's pay to 75 times the average of non-management staff

But IMO the OP's proposal is meaningless, unless you can somehow define "salary" to include every possible benefit an employee can receive. That might be possible in a closed communist system, but probably not anywhere else.

 

[Ryan_m_b]

Sorry that was a typo, I meant to put 100 times. Which is still wrong obviously.

 

[Cthugha]

But IMO the OP's proposal is meaningless, unless you can somehow define "salary" to include every possible benefit an employee can receive. That might be possible in a closed communist system, but probably not anywhere else.

Well, Switzerland will vote on whether they should introduce such a 1:12 salary cap in November: http://www.reuters.com/article/2013/09/27/us-swiss-regulation-pay-idUSBRE98Q0Q020130927

 

[Office_Shredder]

I think a cap like that will just make companies do weird restructuring. Imagine a company splitting into three companies, A B and C, with A owning B and B owning C, where everyone in A makes 6 million dollars a year or more, everyone in B 600 thousand to 6 million dollars, and everyone in C 60 thousand to 600 thousand dollars. Anyone who makes less than 60k gets fired and company A hires company D to do all the janitorial and maintenance work etc. that they need that is no longer covered.

Given that some companies apparently find experienced or up and coming executives worth so much that they are willing to spend tens to a hundred million dollars a year in compensation on them, they will shell out millions in inefficiency to restructure the company to maintain that high compensation.

 

[AlephZero]

I think a cap like that will just make companies do weird restructuring.

That might not even be necessary in Switzerland, given the secrecy of its banking industry

But joking aside, if a manufacturing company decides to sell $1m worth of its products to an executive at a special discount price of $1, and the executive then makes a contract with the company's marketing organization to sell them for him at the market price, at a special discount commission rate of $1, what exactly is the "salary" element of the $999,998 profit on the deal?

 

[pbuk]

But IMO the OP's proposal is meaningless, unless you can somehow define "salary" to include every possible benefit an employee can receive. That might be possible in a closed communist system, but probably not anywhere else.

All advanced economies already do this to ensure that earnings are taxed appropriately.

 

[pbuk]

I think a cap like that will just make companies do weird restructuring. Imagine a company splitting into three companies, A B and C, with A owning B and B owning C, where everyone in A makes 6 million dollars a year or more, everyone in B 600 thousand to 6 million dollars, and everyone in C 60 thousand to 600 thousand dollars. Anyone who makes less than 60k gets fired and company A hires company D to do all the janitorial and maintenance work etc. that they need that is no longer covered.

Given that some companies apparently find experienced or up and coming executives worth so much that they are willing to spend tens to a hundred million dollars a year in compensation on them, they will shell out millions in inefficiency to restructure the company to maintain that high compensation.

This is one potential drawback of such a system. Another is the disincentive to take on lower paid staff which is hardly likely to help the cause of graduate and youth unemployment.

 

[FlexGunship]

hi,
what do you think of a law limiting the salaries discrepancy in enterprises ? Let say the big boss cannot earn more than 12 times the lowest salary in his own enterprise.
This seems against liberal capitalism but can we call this communistic ?
Or utopistic for the poors.

Pretty sure you just end up losing businesses in your country, that's all. Not because the business says "I'm not operating here, poo poo." But because the type of funds required to secure the leaders of an industry won't be available and that will ultimately lead to the company relocating or shutting down.

It might work for small private companies.

That's not to mention it's basically pay discrimination against unskilled workers. Someone who's only worth $10/hr will never get a chance to build skills or experience in a system like that. (EDIT: As it is, minimum wage laws have this effect to a small degree; my friend's younger brother is willing to accept less than minimum wage just to get experience but it's illegal.)

 

[Choppy]

1. What gives you (or the nation or the queen) the right to tell me how much money I can make?
2. What specific problem does this law propose to solve?
3. Is there any evidence that it would actually solve that problem?
4. What problems will it subsquently generate?
5. Is there a better solution?

 

[jk22]

1. This law is submitted to democratic voting. Supposing there are a lot of poors only few rich people will be angry.
2. I don't know which problem it can actually solve except there are very rich and very poor people. But as the tale says, Robin Hood, the only way to get money from the rich is to steal it.
3. Probably not, since you can split the entreprise in a high and low salary ones.
5. there is another proposition :
make a law so that everyone receive 2000$ per month as a basis, even if you don't work, all your life. This should replace all social money.
In this solution the enterprise will reduce their salaries since everyone already has that money.
But I think this solution is not viable since nobody will work anymore and it will create a ghost country ?

 

[Enigman]

1. This law is submitted to democratic voting. Supposing there are a lot of poors only few rich people will be angry.

Depends on the cap limit. The portion of skilled workforce above that paygrade will be pissed. The ones not quite as high will be disappointed as they can't get more money even if they do better. Kills ambition.

2. I don't know which problem it can actually solve except there are very rich and very poor people. But as the tale says, Robin Hood, the only way to get money from the rich is to steal it.

How about the ancient idea about EARNING it?

3. Probably not, since you can split the entreprise in a high and low salary ones.

Where? And Who decides that what work can have the same value?

5. there is another proposition :
make a law so that everyone receive 2000$ per month as a basis, even if you don't work, all your life. This should replace all social money.
In this solution the enterprise will reduce their salaries since everyone already has that money.
But I think this solution is not viable since nobody will work anymore and it will create a ghost country ?

No one will work, money will become redundant as there are no services to buy with it.

A question- Is this something from homework assignment or for an essay of an Economics class? That's the only reason I can think of for such a hypothesis which seems largely redundant without any other supporting changes in policy.

 

[jk22]

No it's reality, there are votation about that in my country, so I wanted to get opinion via the net too.
I suppose this law will never pass, since even 6 weeks of holidays was refused by the population, which seems very courageous for me (note that I don't work and receive 8$/day, I live in a system where money and work are separated, we have to work but for nothing, like 3$/hour).

 

[Evo]

No it's reality, there are votation about that in my country, so I wanted to get opinion via the net too.
I suppose this law will never pass, since even 6 weeks of holidays was refused by the population, which seems very courageous for me (note that I don't work and receive 8$/day, I live in a system where money and work are separated, we have to work but for nothing, like 3$/hour).

I think your problem is that you aren't familiar with Western free countries. I'm sure $2,000 sounds like a lot of money to you. Just where do you envision this money coming from if everyone gets it?

 

[FlexGunship]

1. This law is submitted to democratic voting. Supposing there are a lot of poors only few rich people will be angry.

There was a book about this... a pretty famous one, I believe... http://en.wikipedia.org/wiki/Atlas_Shrugged

You can't vote to give value. Some people can create it.

You can only trade value for value.

Value taken against the will of it's creator, at the point of a gun, is theft.

 

[jk22]

well some people still have the possibility to wish to have more money and they pay taxes. But the amount is not high it is 25 billion per year.
I think money bias the motivation you work for money not because your interesting in what you do. Personnally I am medically described as i can't 'work' (earn my life) for a long period, now already ten years.
I don't think it has to with west or north it is the healthcare system. And they need people to test medicines too.
It is clear that in that system there is no future, no motivation any more and only jobs like cleaning dishes for a lot of people. They say they can't pay us more else the money we receive is diminishes which is total nonsense.

 

[Evo]

well some people still have the possibility to wish to have more money and they pay taxes. But the amount is not high it is 25 billion per year.
I think money bias the motivation you work for money not because your interesting in what you do. Personnally I am medically described as i can't 'work' (earn my life) for a long period, now already ten years.
I don't think it has to with west or north it is the healthcare system. And they need people to test medicines too.
It is clear that in that system there is no future, no motivation any more and only jobs like cleaning dishes for a lot of people. They say they can't pay us more else the money we receive is diminishes which is total nonsense.

You seem to be discussing issues in your country. Do you wish to share which country you live in so people have some idea of what you are talking about?

 

[FlexGunship]

well some people still have the possibility to wish to have more money and they pay taxes. But the amount is not high it is 25 billion per year.
I think money bias the motivation you work for money not because your interesting in what you do. Personnally I am medically described as i can't 'work' (earn my life) for a long period, now already ten years.
I don't think it has to with west or north it is the healthcare system. And they need people to test medicines too.

I don't understand this part. I agree, though, no one should be diagnosed as "unable to work." Work is not just manual labor. Every person has some value they can contribute; in the case of the handicapped, there are social programs.

It is clear that in that system there is no future, no motivation any more and only jobs like cleaning dishes for a lot of people.

Fortunately for you, there will always be industrious people who seek to reshape their society through hard work and innovation. How could it happen that you can live in a house and yet not be able to build one yourself? Someone built one for you in exchange for some value that you received in trade earlier.

For me, I trade my engineering skills (and time) for value (money). I then take that value to a baker and trade him some for his skills (and time) in the form of bread. I can't make bread, but I'm able to acquire it through the exchange of value. The only thing that keeps me alive is that someone, somewhere needs what I can create... it has intrinsic value.

They say they can't pay us more else the money we receive is diminishes which is total nonsense.

Actually, this makes perfect sense. If the total value of an economy is $1,000,000 and you print $2,000,000 worth of currency, then it takes $2 of currency to acquire $1 of value. If everyone just got more money, the money itself would be devalued since there's no actual increase in value.

Otherwise, you would have nonsense things like someone having only SOME of the money, but being able to buy ALL of the things. What good is the rest of the money? It's worthless. (Just a thought experiment.)

When you accept money in payment for your effort, you do so only on the conviction that you will exchange it for the product of the effort of others. It is not the moochers or the looters who give value to money. Not an ocean of tears not all the guns in the world can transform those pieces of paper in your wallet into the bread you will need to survive tomorrow.

 

[Office_Shredder]

I'm guessing the 2000 dollar a month proposal has something to do with
http://www.reuters.com/article/2013/10/04/us-swiss-pay-idUSBRE9930O620131004

If you give everyone a fixed quantity of money, then the people who had less money to start with will be worth relatively more, so it's not an insane way of balancing income inequality - people who are poorer will see their purchasing power increase.

The concept is known as basic income

http://en.wikipedia.org/wiki/Basic_income#Examples_of_implementation

and has been attempted in small scale experiments (e.g. on a town-wide scale), generally with positive effect. Some resource rich regions pay an amount of the proceeds of the resource to every citizen which is effectively the same concept (for example, in Alaska every citizen gets paid cash money about 1000 dollars a year in oil revenue).


Why would this be desirable? To use the US as an example, If you cut food stamps and medicare/medicaid and social security and just paid everyone 10 thousand dollars a year straight up you would have eliminated much of the need for those social programs and saved money on the administration of them as well as eliminate the prospect of committing fraud. You would need to administer this transfer of a couple trillion dollars in an efficient manner though, so it's unclear if any actual savings are brought there, and you need to raise taxes obviously as well (though by less than you might think - if we pay 10,000 dollars to 200,000,000 adults that would be 2 trillion dollars in spending - if we eliminated medicare/medicaid and social security, we would cut about 1.6 trillion dollars, so we would need to raise another 400 billion dollars a year in taxes, which is significant but not outrageous in scale). Keep in mind that when you raise taxes you're raising taxes on people who are being paid 10,000 dollars extra a year - mostly the tax raise would just be to make it so that people who are being paid a good amount already get taxed an extra 10,000 dollars to cancel out the extra 10k they are getting (so effectively fewer adults would really be getting paid 10,000 dollars a year)

 

[FlexGunship]

and has been attempted in small scale experiments (e.g. on a town-wide scale), generally with positive effect. Some resource rich regions pay an amount of the proceeds of the resource to every citizen which is effectively the same concept (for example, in Alaska every citizen gets paid cash money about 1000 dollars a year in oil revenue).

Eh... this is reasonable... but only applies to very small regions. What about when the abundant natural resource is intelligence or a good work ethic?

Why would this be desirable? To use the US as an example, If you cut food stamps and medicare/medicaid and social security and just paid everyone 10 thousand dollars a year straight up you would have eliminated much of the need for those social programs and saved money on the administration of them as well as eliminate the prospect of committing fraud. You would need to administer this transfer of a couple trillion dollars in an efficient manner though, so it's unclear if any actual savings are brought there, and you need to raise taxes obviously as well (though by less than you might think - if we pay 10,000 dollars to 200,000,000 adults that would be 2 trillion dollars in spending - if we eliminated medicare/medicaid and social security, we would cut about 1.6 trillion dollars, so we would need to raise another 400 billion dollars a year in taxes, which is significant but not outrageous in scale). Keep in mind that when you raise taxes you're raising taxes on people who are being paid 10,000 dollars extra a year - mostly the tax raise would just be to make it so that people who are being paid a good amount already get taxed an extra 10,000 dollars to cancel out the extra 10k they are getting (so effectively fewer adults would really be getting paid 10,000 dollars a year)

(Bolding mine) These ideas make me cringe... the first thing that would happen if you gave everyone $10,000 is a surge in personal boat, second car, HDTV, video game console, and motorcycle sales. Then you'd still be stuck funding some sort of public health option and public pension find as everyone lapsed back into poverty and disease for 11 months.

I actually prefer your idea, don't get me wrong. I'd rather see it as a reduction in taxes; don't just give me $10,000... stop taking $10,000 away from me.

 

[Evo]

To use the US as an example, If you cut food stamps and medicare/medicaid and social security and just paid everyone 10 thousand dollars a year straight up you would have eliminated much of the need for those social programs and saved money on the administration of them as well as eliminate the prospect of committing fraud.

What disabled person can live on only $10k a year in the US? That would put even a single person below the poverty level. I have paid a fortune into Social Security and medicaid during my life, not to mention what my employer matched, I would never get it back even if I lived to be over 100 years old. This would never work, IMO.

 

[Windadct]

Somhow this seems to have gotten off topic - going into a tax / government issue, perhaps a TL/DR issue- but I didn't see it. The LAW they are discussing is that companies can not pay execs more then 12 x the loweest earners income.

This is not so much pay the lower end more as limit the top end... Some countries will do this and clearly there could be unintended consequences. However - IMO - many of the executives are paid so much more out irrational mindset that higher pay yields higher talent or capability. Kind of like when you are sick you will pay more for medicine .

Also - if the upper reward is all about the money, the executives begin making more decisions about what is best for them ( what brings the biggest bonus - this quarter) - not what is best for the company, the reward basis has becom over inflated and disconnected from the long term success of the organization.

In this world the mindset has become - if it does not have a $ sign it is worthless. AND the people with the most $ make the rules and set the incentives - meaning more $ for them, regardless of true value of their output.

 

[Evo]

Excellent point, no more off topic posts.

 

[jk22]

yes those intrusion from the state in the money affairs is surely not good and in the case of everyone having the same amount 'given' nothing is given, it is a kind of dictatorship of the state isn't it.

 

[Windadct]

Well as an engineer a quick analysis is at the boundary conditions: IMO both utopian views 100% State control and 100% free market are not practical, or sustainable - both leading to financial and social instability.

So the question / key becomes, where is the optimal point between the two?

Any system - especially one this complicated needs some controlling mechanism.

 

[jk22]

i agree. Do you think a base income for women only could fight against prostitution ? So they get security.

 

[Evo]

Seems no one has an interest in the thread topic, so thread closed.