The idea of income security means having confidence in your ability to earn a living and make your way in the world; the confidence that barring sickness or disability or some random Act of God such as a zombie apocalypse, you will always find work for your hands to do.
The idea of income security does not mean having a guarantee that nobody out there will ever earn more than you so that you can always be sure of being as rich (or nearly as rich) as everyone else in your society. We all assume that if people are very rich they must have done something wrong, but nobody has a fundamental human right to live in conditions where everyone has the same amount of stuff and nobody has vastly more than other people.
This means that we should do everything we can to remove barriers that prevent people from having the chance to have a go at making their own way in life. But it doesn’t mean that we should do everything we can to equalize wages. It seems now to be accepted wisdom that it is extremely important to know how many multiples of your wage other people earn, so that you can decide whether that is ‘fair’. We assume that it is possible to know whether other people's wages are fair even though we have no idea what work they actually do or what value they offer to the person paying them. Thus the so-called ‘pay ratio’ has been elevated to priority status in deciding on our economic future:
Legislators also want to ban ‘long term incentive plans’ because…well, because these schemes are used to pay rich corporate executives so much money that they end up being richer than 99% of people around them. Nobody understands exactly how LTIPs work, which is of course viewed as another reason to ban them. These pay schemes are deliberately complex. Of course they will always be hard to understand. If a thing is complex, no amount of ‘explaining it better’ will make it easy to understand. Moreover, when people complain about other people being richer than them, it’s not because they want to ‘understand’. No, they just want to equalize everything. Understanding is for the birds. 'I don't understand why you are paid so much' just means 'I don't like the fact that you earn so much'. Probably that’s why the proposal is that complex pay schemes should simply be banned. Needless to say, nobody knows exactly what’s going to happen after the ban.
Some unintended consequences? You don’t say. I can offer a prediction about one thing that will not happen: executive pay is not going to suddenly plummet. What’s not going to happen is: ‘Oh, look at all the executives, they used to be so rich and now they’re paupers the lot of them! How delightful to see the mighty brought down! If only we had thought of abolishing LTIPs before!’ No. What is going to happen will be something more like a new complex pay scheme that hasn't yet been banned because it wasn't invented yet when the ban was introduced. Unless you can find a way to ban people from dreaming about how to create wealth, you will always be chasing round and round after rich people, getting ever more tied up in furious knots.
The bit about ‘stricter annual votes’ is also funny because shareholders have the ultimate power to hire and fire directors by a simple majority vote. If shareholders decided that henceforth they would not invest in companies that don't disclose 'pay ratios' or anything else that shareholders would like to know about, that would be a matter for them. They don’t need help from ‘stricter’ laws to give them the power to call the shots in their own company. The problem is that since shareholders rule by majority vote, if there’s a shareholder who wants to reduce executive pay to…well, ideally to zero, since the executive should work for free out of the goodness of his heart…then that shareholder has a problem if they can’t get the majority to agree. So the ‘stricter annual votes’ is really a way of saying that the law will be there to rump up the voting power of any shareholder who shows willingness to bring down executive pay. If most shareholders are fine with what the directors are earning, just make them go back and vote again and again until they come up with the right answer!
All this energy being expended on trying to make other people less rich! It’s phenomenal! How about harnessing all that energy and spending it on increasing productivity? Now there’s a radical idea. Increase the size of the pie, folks, then there’ll be more pie for everyone and we won’t have to spend so much time scrapping over who got the largest slice and passing laws about how to measure the ratio between everybody’s slices.
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