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A Very Sensible Observation About Executive Comp

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This falls in the “Why didn’t I think of that” category. From Angry Bear:

Reader Eightnine2718281828mu5 sent me a couple e-mails. I realized that together they constituted a post. This one is by Eightnine2718281828mu5:

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I think part of the reason that median salaries don’t rise as fast as CEO salaries is that CEO’s know what other CEO’s make; most companies make it seem like a firing offense to discuss salaries among your co-workers. But because CEO compensation is a matter of public record, CEO’s can make a case that “I’m worth more than so-and-so” and it gives them leverage to bump their salaries.

If the average worker could say “Joe is a useless moron, but he makes 20% more than me” they would have leverage in salary negotiations. But because there’s asymmetrical information, it’s easy for companies to gain the upper hand. (Consider this story on CNN.com.)

If I was in Congress, I’d be pushing to make all salaries/wages a matter of public record to level the playing field. This would cause median salaries to rise without government intervention or by resorting to things abhorrent to the right like union membership.

Free markets work best when all parties operate in the context of the full and free flow of information; what free-marketer could complain about providing this vital piece of information to workers when negotiating with their employer?

Now folks on Wall Street are much better than people in industry in demanding pay. And people in one department had a way of sharing information that wasn’t problematic. Everyone put their annual comp and their seniority on a piece of paper, which was tossed into a hat, tabulated by a secretary, and redistributed to all the participants. You got transparency without the ego damage of having everyone knowing what you made (of course, you need a large enough group for this approach to assure that people won’t figure out what number goes with what person…..).

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