Government regulation of CEO pay

As we have noted, we feel very strongly that CEO pay is excessive. While this is of course not true for every chief executive, we think it general pay is too high. There seems to be an increasing amount of talk out there of regulating Chief Executive Officer (CEO) pay, especially as the nation starts to put more focus on the 2020 presidential races.

Excessive pay is a challenge facing this country. Some CEOs make more money in a year than the average worker will make in hundreds or thousands of years. But should the government regulate Chief Executive pay? How could that be accomplished?

There are instances of CEOs making these excessive salaries even when their company does questionable if arguably illegal activities, such as Well Fargo secretly opening millions of unauthorized accounts for their customers. Or some CEOs are hired at salaries of tens of millions of dollars for companies that have been operating for tens or hundreds of years -in other words they are not “founders” but they come into an existing company and make thousands of times more in salary than the existing employees. So maybe you think government regulation is a good idea because of this or other reasons.

Government regulating salaries

While we think in general income disparity is a major challenge, like much in life, I am not sure if there is a simple answer. For example, if the government regulates CEO pay, where does it stop? How does anyone know what a fair salary is? Who will set the salaries? And countless other questions.

Jamie Dimon, the CEO of JP Morgan, makes over $30 million per year. The JP Morgan CIO, who is responsible for security of your financial information (including cyber-security) makes a little over $3 million. Does the CEO make too much, especially in regards to the executive who is responsible for protecting your account not to mention all the other employees. Yes, Jamie Dimon probably makes too much.

But then again, there are about 50 major league baseball players who make over $20 million per year and about 10 of those players earn over $30 million. There are about 55 NBA players who make over $20 million per year and about 20 of those players earn over $30 million. Currently about 15 football players make over $15 million per year. And of course, those amounts do not include endorsements.

I find it ironic how someone (many people) may complain about CEO pay, but in their next breath they are talking about their favorite singer, Hollywood star, athlete, or other person who may make more money than a CEO but who in reality has no responsibility. At least CEOs can say that well maybe I am well paid, but I am responsible for X jobs and at the of the day, what is an NBA player or singer ultimately responsible for?

Jamie Dimon leads and is responsible for a company with over 250,000 employees. A professional sports play plays a game ½ up to ¾ of the year. Should the government regulate a baseball players salary? Or any athlete? Should Dimon, who leads 250,000 people, make more than an NBA player who plays a game 80 nights a year? Or how about government salary regulations for movie starts, singers, directors, and countless others. “Stars” can make tens of millions per year. Should a CEO make more than say Stone Cold Steve Austin? So if the government regulates CEO pay, where does it stop.

What about employees of any level in any other company? What about a newscaster who can make seven digits salary for mostly reading off a teleprompter or listening to producers in their earpiece? Then the people that write that content (that the newscaster reads) may make less than 100K. Should the newscaster make 50 or 100 times more than the writer? Should a doctor make 30 times more than a nurse? Who knows. But would regulations be needed to address that pay disparity too?

The point is, if the government regulates CEO pay or puts in place extra controls, where does it stop? If it starts with CEOs, then X years down the road people make start complaining about other professions. Such as an investment banker making 10 or 20 times more than a police officer or nurse. Or EMT being paid 1/20th of what a doctor makes. Regulations may soon expand to multiple or heck maybe all careers.

What about a founder of a company who is both founder/CEO? A founder can often risk everything, devote years of their life, put their personal credit on the line, and take other huge risks. Should that founder/CEO, who risked everything, also face salary regulations? Should the government regulate founder salaries? Why would anyone want to take those risks in starting a company if that is the case? At least starting a company in the US. Maybe the next Googles, Pfizers, Microsofts, etc. would be started and based in another country.

There are some proposals that talked about forcing corporate boards to put workers on them who would help control salaries. Or forcing additional taxes on companies in which the CEO pay is too high when compared to workers. Any other regulations and price controls have been talked about and/or promised.

CEO salaries are only one part of income disparity

Yes, income disparity is a major problem. But the government quasi-regulating or controlling CEO salaries may sound like a great and “simple” solution (at least to those people who do not take a thoughtful approach), but as noted, where does it stop? Should we continue to pay movie stars, athletes, TV personalities, doctors and countless others outrageous salaries, when you put those salaries into comparison with other Americans or positions within their companies?

We do know that there are issues in the income tax code, such as carried interest or the tax breaks that corporations get (but not sole proprietors). Or loopholes in how companies can in effect reclassify their income as being earned in lower tax states or countries, income tax fraud, and much more in the tax code. Even something as simple as cracking down on tax cheats can bring in tens or hundreds of billions of dollars per year to the government. Maybe instead of trying to regulate CEO or other people’s salaries, the government should address those issues which are really low hanging fruit in the larger picture. Those can also help address income disparity.

That being said, the issue is complicated. Maybe some idea would make sense, or a variation of an idea. But as long as the discussion is more thoughtful, instead of some people just “screaming” regulate and penalize CEO pay…that is not a thoughtful discussion or solution.

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