Monday, March 7, 2011

Today in inequality reading: CAP and employee compensation

One of the things that has struck me as unjust about growing income inequality in the United States is that American workers have vastly increased their productivity over the last three decades—and yet have seen almost no income growth as a result. Today, the Center for American Progress offers a suggestion to solve that issue—suggesting, in essence, that all employees (and not just top executives) share in a firm's growing wealth:
The reform encourages firms to develop broad-based incentive compensation systems that link employee earnings to the performance of the firm. This reform would give employees access to the capital-related earnings of their companies comparable to that of the senior executives who run these firms.

Specifically, our plan would give favorable tax treatment to compensation systems that link incentive pay to company performance if all of the company’s full-time employees participated in them and if the value expended on the top 5 percent of employees by salary was also expended on the bottom 80 percent of employees by salary.
I've not read through the details of the report, and I don't really know what arguments exist against encouraging firms to spread performance-based compensation down the food chain. But I do suspect that publicly traded firms have rewarded CEOs based on quarterly reports and how they affect a company's stock price—encouraging top leaders to focus on short-term tricks rather than the long-term value of their company. If this suggestion would exacerbate that problem, I'd be hesitant. Republicans, I suspect, will cry "socialism" over the matter—but if it's a choice between better-compensating employees in order to get a tax break or having taxes taken and redistributed to support the safety net, I imagine they could be convinced to support the former.


Rick Henderson said...

Hmmm. The cynic in me reads this story and sees an apology for the Obama administration. I should go back to 2008 and see how the NYT treated the gas price surge then, when Bush was in office. Wailing and gnashing of teeth would be my guess.

Rick Henderson said...

Posted to wrong blog. Sorry.