Compensation, as a news topic, has worked its way from the Business section to the Front Page (where there are still pages). For example, the Seattle Times did its annual story on executive pay, in the Business section, but the Sunday front page (full disclosure, I was quoted) carried the headline “As pay raises increase for Northwest CEOs, so does income inequality” – there we go (somewhat due to my work with the Times writer), we have connected the “excessive CEO pay” and the “income inequality” topics which pulls us into the minimum wage debate.
This, in turn, generates the debate about what is “fair” or “right” or “just” because many people are concerned about a CEO being “paid” (see my other blog postings explaining the complexity of this concept) $20 million per year when employees are paid, even in those enlightened companies paying above the legally-mandated minimum wage, $10 per hour. In our capitalist economy that rewards achievement, risk-taking, success…is this wrong? And this, of course, leads to the “compared to what?” question.
Most compensation consultants will justify this state of affairs based on “market” – the $10 per hour employees are working in that job for that wage in a free market, and companies “need” to be “competitive” and pay the “market rate” for a CEO…which happens to be an average of $10 million per year among S&P 500 companies. I’ve even heard other compensation consultants “frame” the pay of a CEO who is paid above and beyond the reasonable “market” range for that company as receiving pay that is “highly competitive” and I find that disgusting. Despite our federal government’s best efforts to ensure that Compensation Committees are “independent” and their consultants are also “independent” there is not a lot of independent thinking going on. In fact, almost none.
Congress was unable to “fix” executive compensation with 162(m) and 409A; FASB’s now-named ASC Topic 718 (nee FAS 123) only fueled takeaways from lower-level workers; Sarbanes-Oxley and Dodd-Frank and excessive requirements for disclosure, plus say-on-pay, have essentially had zero effect. Yes, some perks went away, but did the dollar value of those disappear? Of course not.
As an Adjunct Professor at Seattle Pacific University, teaching a compensation course in the MBA program, I have found my views stemming from 30+ years of compensation consulting being challenged at a time when there is a daily news story about a company increasing its minimum pay rate, without any legal or regulatory reason. Each story is a bit different – Walmart and Target are coming from a different place than Gravity Payments (minimum wage of $70,000 per year) and Shake Shack. Is it just PR, political correctness, labor relations strategy? Or are companies doing the right thing?
This is the beginning of what will be a social upheaval in compensation, soon to be fueled by the CEO Pay Ratio rules (finally!). Our society will be collectively asking “what is right?” – “what is fair?” – “what is just?” and I will have recently spent several months brainstorming with brilliant theologians and brilliant graduate students about this. We will have a Theology of Pay and whether one is or is not inclined to be guided by such values, sometimes there’s only one way to answer questions about what is right, fair, and just. I predict a wave of CEO pay reductions which will be “voluntary” and then we compensation consultants will have to reconsider what is “market” and what is “competitive” and whether those who do not experience significant pay cuts are then getting pay that is “highly competitive.”
It may be that in a free market economy, in a country that prints “In God We Trust” on its currency, that the best efforts of the legislators, regulators, and others piling on for economic opportunities will have not made a difference. Instead, change will come differently.
Much thinking has already gone into the Theology of Work. Stay tuned and watch for theologyofpay.com, theologyofpay.net, and theologyofpay.co. Of course it’s a Trinity. 🙂