Execs Should Pay Equally With Laid-Off Workers
Reports today that Dell, having fallen slightly short of expectations for current quarter earnings, will lay off 8,000 workers rankled me. But they also got me thinking about the broader issue of equitable treatment of leadership and rank-and-file.
Across the United States, top executive compensation is out of control. The average CxO makes between $400 and $500 for every dollar paid to the average worker, an all-time high for that gap ratio. In 2005, the figure was $411. Final figures for 2006 are apparently not in yet, but estimates set the ratio above $500.
That is criminally irresponsible. Exec pay is growing faster than corporate profits while rank-and-file compensation barely keeps up with inflation.
So I have a modest proposal. Whenever a company sees a need to trim its budget and lay off workers, the top tiers of executives must share equally in the reduction as a group. For example, if the company wants to shave $100 million off operating costs and to do so it plans to lay off 10,000 workers (just hypothetical numbers for easy calciulation), then it should be required to reduce the layoff by half to 5,000 and take the remaining $50 million out of pay cuts and/or terminations to the top tiers of executives.
(Read more for my reasons and explanation.)
This policy makes good national economic sense. A rank-and-file worker who gets laid off often ends up becoming dependent on unemployment compensation and, in extreme cases, welfare and other government benefits paid for by the taxpayers. In other words, we the people are subsidizing exorbitant executive compensation.
Furthermore, the ripple effect of massive layoffs are devastating to local economies which are often dependent on one or a small number of companies for their local tax base. Families suffer and are often torn apart by the stress. Laid-off workers unable to find suitable replacement jobs end up in counseling (often paid for by other government agencies).
In sum, the inequity of executive overcompensation ends up hurting tens of thousands, perhaps millions of people and taxpayers who must pick up a share of the burden of survival for the affected workers and their families.
By contrast, if a top executive making, say, $10 million a year (which was just about the average in 2005), takes a 10% or even 20% pay cut, nobody gets hurt. No government programs are needed to shore up his family's survivability. In a worst-case scenario, even if he or she gets terminated in such a move, they have a nest egg big enough to carry them for a number of years.
This has the feeling, for me, of an idea whose time has come.
What do you think?
