Executive pay is just the symptom

“The secret of success is honesty and fair dealing. If you can fake those, you’ve got it made.”

— Groucho Marx

“That is how it is painted by capitalist propagandists, who purport to draw a lesson from the example of Rockefeller—whether or not it is true—about the possibilities of success. The amount of poverty and suffering required for the emergence of a Rockefeller, and the amount of depravity that the accumulation of a fortune of such magnitude entails, are left out of the picture, and it is not always possible to make the people in general see this.”

— Ernesto ‘Che’ Guevara

Since the start of the financial crisis and the bank bailout, there has been a marked increase in public interest regarding executive pay.  It’s not that executives didn’t earn ridiculous salaries before then, but because we were in a boom time, the economy was something most people simply took for granted.  The only people asking questions back then were generally written off by the mainstream as “silly socialists who are jealous of success”.  We were all sucked into the American dream, that one day it might be us up there on the top floor, calling the shots and raking in the dough.  The fantasy was so lucid that even when we despised our bosses, we still dreamed of being in their shoes.  There was no question about whether people at the top should earn as much as they do.  With the crisis however, came the media attention on the banks, with both socialists and traditional conservatives demanding answers.

The doctrine of free market Capitalism states that there is no need to question whether someone deserves what they are paid.   Any external interference, governmental or otherwise, would be artificial.  To restrict or levy taxes, they argue, is simply stealing from what someone has justly acquired.  How can it be wrong, they ask, for someone to earn as much as they have, well, earned?  That is after all, how we talk of it, earning money.  The problem with us  addressing the argument on these terms is that we are allowing the right to frame the argument.  When we accept their terms of discussion, “earned,” “deserve,” we inherently accept their model of thinking, and are doomed to try and break out of it from within.  It is impossible for us to argue that it is injust for executives to earn as much as they do.  Instead, we need to consider that the money people receive for their work is not an earning at all, but simply an amount for which their labour is exchanged.  There is no contribution to society for which they are naturally rewarded; there is a contribution to a company in exchange for a bartered reward, with both parties acting on selfish interests.

Of course, we are still at liberty to ponder what, in terms of their contribution, executives do deserve.  Some argue that because they make large amounts of money for the companies they work for, they have contributed that amount and therefore deserve to be rewarded proportionally.  The reality is however, that they are only able to achieve these things because of the company assets at their command.  To completely attribute the executive for the successes of his company is to ignore the horse and praise only the jockey.  We have to look purely at the intrinsic value of their input as an individual, not any results that occur because of the environment in which that input is used.  It is still very difficult to quantify this, but one thing we do know is that current salaries are massively higher than what they should be for any realistically possible contribution.  Given that some executives are paid over a thousand times the median wage, we can ask: does that executive give a greater contribution in one year of work than the average person would in a thousand years of work?  Even if the executive is hard-working and highly skilled, their contribution is not worth a thousand years of anyone else, contrary to what Ayn Rand might say.

Given our re-framing of the argument, the question still arises as to why we should care.  Is it not perfectly right and proper for an individual to sell his or her labour at whatever rate they wish? and for a company to buy labour at whatever rate it can barter?  Of course, the issue is of public interest for the banks now partially-owned by the state, but for the vast majority of companies, what business is it of the state what they decide to pay their employees?  If executives are selling their labour at a rate above its true contribution value, then if anything, they are exploiting their employer.  We know however, that this cannot be true, because banks and corporations do not struggle for profit, having paid all their money to their executives.  Although their executives are paid very highly relative to their contribution, far more highly than any other employee, a still larger amount is always left for the companies owners, be those private or shareholders.  If there’s one constant in Capitalism, it’s the power of those with ownership to exploit those who must work.  It would at first seem that we have a paradox: executives are paid far beyond their contribution and yet, they, as workers, are still exploited by owners.  This is no longer a paradox however, when we consider that it is possible to exploit and be exploited.  Collectively, the executives and the shareholders exploit the workers of an organisation, extracting from them all the work they can for as little pay as possible; then the executives themselves are exploited by the shareholders.  It might seem perverse to consider that, in that second relative bubble, it would in fact be fair for the profits of the company to be split entirely among the executives, paying them more, but it is of course vital to consider that this is a relative position.  In absolute terms, they should be paid less, because the profits of labour should be shared out more-evenly within all the workers of the company.  In companies such as banks and supermarkets, there is even an extra level of exploitation: the exploitation of suppliers and customers by the company as a whole.  In a bank, the executives are so highly paid because although they are exploited by the owners (shareholders), who take most of the earnings, they ensure their large pay-cheques by making sure the whole pot is larger — by exploiting other workers, and customers.

It is in the exact same way that British workers, as a whole, enjoy an increase of their real wages, due to the lowered price of commodities imported from China, where wages are lower and there is a greater rate of labour exploitation. The local workers are themselves exploited, but some of that is compensated for by an involuntary exploitation of others elsewhere.

When we consider this web of exploitation, we realise that pay excesses within companies are the concern of the people and state.  The exploitation of workers and customers that reaps such massive profits and allows for such massive rewards is intrinstically wrong.  George Monbiot proposes and makes a good case for a maximum wage in the UK.  His arguments over why executives do not need to be paid so highly are absolutely correct.  The problem, I believe, is that while such a measure would of course reduce boardroom pay, it would not benefit workers or the public.  Instead, it would simply allow the company owners, those at the top rung of the exploitation ladder, to pay executives less and have more money left for themselves.  By artificially capping executive pay, we simply increase shareholder rewards, stopping the flow of money to the super-rich and diverting it to the hyper-rich, other companies, or worst of all, investors abroad.  If we want to tackle high executive pay, we need to tackle not the symptom, but the cause: the fact that these companies are making so much money by exploiting the middle and lower classes that they can afford to pay executives so highly.  Unfortunately, the ultimate cause is an intrinsic feature of Capitalism: the exploitation of labour and need, through ownership.