Revisiting the Neumann Plan

About six months ago I wrote out a few simple suggestions about how we could achieve balanced budgets and full employment.

I think we need to add a sixth point to the five point plan.

There needs to be a mechanism whereby the gap between the highest wage-earners and the lowest can be narrowed. In North America today the typical CEO of a major company is paid roughly 400 times what the average employee is paid.

Thirty years ago that ratio was about 40:1.

If we can legislate a minimum wage, we can legislate a maximum wage.

There are a multiplicity of reasons why the worker's income has stagnated while that of the CEO has increased tenfold. None of those reasons have anything to do with the relative merit of CEOs. Rather, it has been the emergence of a culture of entitlement that has spurred these obscene gains in executive compensation.

Executive compensation has sky-rocketed because the guys in charge are paying themselves and figured out that they can get away with it.

Look at Doug Oberhelman for example, CEO of Caterpillar. In 2011, while he was quietly scheming to drop  the pay of the guys who weld the Cat machines together from $60 K per year to 30, he was lobbying the board of directors for a 60% pay raise, which he got.

If there were a legislated limit to the ratio of CEO pay to worker pay, Oberhelman would have had to take a 50% cut right along with his workers.

Or what is far more likely, he would have left the workers alone.

The culture of executive entitlement never went off the rails in Europe to the extent it did in North America, and the folks there are at least cognizant of the fact that society needs to debate the matter. David Roth of the Switzerland Social Democrat youth wing has proposed a multiple of twelve.

Doug Oberhelman's pay packet would by law be limited to twelve times what his lowest paid employee earns.

Klaus Schwab at the World Economic Forum and Francois Hollande before he became Hollande the Conqueror both proposed a multiple of twenty.

When I used to sit around the Albion with fellow students and left-tilting professors, long before the Albion was gentrified, the multiple that came up was ten. The point being that this is by no means a new idea.

But it is an idea whose time has come. We need to get away from the CEO giving himself a 60% pay raise while cutting the pay of his workers by 50%.

Whether that CEO-worker pay ratio is 10 or 12 or 20 or 25 to 1, there needs to be limit to how much we reward the top earners. I'll go with David Roth and his Social Democrats on this one.

Point no. 6 on the Neumann Plan for balanced budgets and full employment; limit executive pay to twelve times the pay of the minimum in the entity that executive is managing.