My plan to solve executive pay

August 16, 2014 by Joshua
in Awareness, Education, Leadership

Executive pay in the U.S. is out of hand and everybody knows it. Wikipedia put it well

Executive compensation in the United States differs from other employee compensation in the forms it takes, laws and regulation it is subject to, its dramatic rise over the past three decades and wide ranging criticism leveled against it. In the past three decades in America executive compensation or pay has risen dramatically beyond what can be explained by changes in firm size, performance, and industry classification. It is the highest in the world in both absolute terms and relative to median salary in the US. It has been criticized not only as excessive, but also for “rewarding failure”—including massive drops in stock price, and much of the national growth in income inequality.

Last winter a CEO of Time Warner Cable became eligible for $80 million in pay for six weeks of work.

If people signed contracts and the relevant Boards agreed, you have to honor the contract. I’m sure I’m missing relevant information.

Here’s how I see it. That $80 million comes from somewhere. It comes from the customers—the people he is supposed to serve. He and his company are free to use whatever model for leadership they want, so they can see charging what the market will bear as fair (though where the company has a monopoly it can charge higher prices), but my model of leadership isn’t just doing anything the law allows. I think of a leader as serving the people they lead. Taking out that kind of money seems the opposite.

A lot of people are trying to figure out ways to bring executive pay back to historical levels, citing many problems the current amount creates. Nothing has worked so far. I’m not sure how much I can do, but I’ll tell you my perspective and the part I plan to do to help the situation.

I see the issue as a pricing issue—what price executives’ labor is worth. If we know anything from economics, one set of factors sets prices more than anything else: supply and demand. Other factors can affect pricing, but it’s hard to get around supply and demand.

Prices going up mean supply is decreasing relative to demand. It could mean supply is artificially being reduced or throttled. I believe that the supply bottleneck is effective leadership teaching. We teach a lot of things well, but not self-awareness, emotional skill, and other so-called soft skills. Some people and institutions teach these things well, so we can do it, but our educational system teaches functional skills, puts people to work, and expects them to learn leadership skills on the job. I’m simplifying, but I believe the overall picture is accurate.

My plan: to teach leadership better than most do now and inspire others to teach well too. As word spreads about how much people appreciate effective leadership and find it improves their lives, we will flood the market with people who lead effectively and love their work, dropping the price of executive pay while helping executives enjoy their lives and work more. Executive pay can drop a lot and still support enjoyable lifestyles.

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