This week’s Economist features a survey on executive pay that basically argues that, while there have been excesses, executive pay is generally awarded in a fair and legal way. The crux of the matter, as presented, is that executives earn less in pay than they add to the value of the company. More specifically, they add more than the most qualified person willing to work for less could.
At one point, the article holds up Robert Nardelli from Home Depot as an example. When he left the company, he got a severance package of $200 million. Even if his performance did earn more than that from the company, I think a case can be made that it is fundamentally unjust for one human being to have that much money. It enormously outstrips the needs a person could possibly have, and it is awarded in a world where millions domestically and billions around the world live in poverty. While emotionally satisfying, that argument may be fallacious: poverty alleviation is not the alternative usage for this money, and there isn’t a fixed amount of the money in the world to be distributed to one thing or another. It is at least logically possible that the economic contributions of chief executives do generate societal benefits.
Is the marginal value versus marginal cost perspective really the right way to evaluate executive pay? The degree to which the public tends to view such people as little better than venomous snakes suggests that the idea clashes with general moral intuitions. (Personally, I don’t think that venomous snakes belong in the category of things to which moral judgments can be applied; they are like large falling stones.) Of course, that doesn’t advance argument very far on the matter of what could or should be done about it. As discussed before, the problem is not that inequality is inherently morally problematic, but rather that it seems impossible that the differences between one human being and another could justify such excessive differences in payment. Furthermore, the reasons for which any such differences might exist are largely the product of chance.
{ 2 trackbacks }
{ 9 comments… read them below or add one }
The question is who or what is unjust about the situation. Here I think Cohen is right – it’s unjust of these people to demand so much, when they could work for less. (Though possibly it depends what else they think will be done with the money – it might be right to demand £200m provided you then give most of it to the poor/charity)
Milan, this is a small problem, whose awnser doesn’t exist aside from the large one. The large problem is – is legal structure that coorperations operate inside of just? Is it just for a coorperation to be beholden to its shareholders above the public good? Etc, etc, I believe if these fundamental problems were solved, we would not have these problems to contend with.
The notion that inequality itself is not morally problematic is false – the Millian sphere does not exist. One person’s being well off makes everyone else less well off because its scientifically (and also, people have just known this for a long time) proven that people evaluate their happiness relative to others. Thus, it’s not that Rawls is wrong, it’s that you need to add another value into the equation – inequality can’t be justified on absolute terms (i.e. it’s justified because it makes the least well off 1$ richer), but needs to be justified on terms which reflect the fact that people feel worse off because of the inequality, full stop.
Considering this, the fact that some executives make 200 million dollar severance packages, makes everyone in society depressed. It’s difficult to quantify the social cost of these severance packages because different people obviously experience the phenomenon to different extents (i.e. those who feel the salaries are fundamentally unjust because they are too large will feel even more worse off than those who think they are just, but still see their own saleries as tiny in comparison).
Liberalism tried to develop an ethical system that would justify the status quo, but again and again its failed. I think this is simply because ethical systems based on people’s moral intuitions (and their codification into moral laws) appear close to the status quo, because for the most part people generally agree with the society they live in (after all, they were raised in it). However, capitalism in current forms produces contradictions between it’s ideals and its realities that makes inequality a problem, and makes the happiness of others important. However, capitalism doesn’t actually have any resources to deal with inequality (it survives off the structure of inequality – without desperately poor countries we could simply not have become so rich). So, we have courses and papers that you read (and the Economist) that try to contain the problems using only the moral intuitions that are containable within the sytem (such as in this case, the notion that one’s pay can be ethically determined from the amount to which one benefits a company). This is a fine intuition – except that it holds no water when it stands besides the company’s externalities which it does not pay for, like Environmental damage in special economic zones, like the perpetuation of misery and poverty, like union crushing etc.. etc… To compensate a person for their positive contribution is hypocritical if one does not also compensate parties for negative contributions.
What you are saying here is that inequality is a problem in itself when:
a) It is excessive
b) It is not very obviously earned
You are probably right to say that this is more about peoples’ emotions than about logical or moral argument.
Tristan,
At one point, letting women have senior jobs in government probably made a lot of people depressed. Does that mean we should have banned it?
Anon,
No, what I’m saying is that inequality is itself a moral problem because the millian sphere, in which you can do anything you want as long as you don’t hurt others, is a lie – because the things that you do that don’t seem to affect others, actually do.
I don’t think it’s an invalid point to raise against women’s equality, that it may have a psychological cost on a large portion of the population. However, in this cause that value is outweighed obviously by the value of gender equality which is something the state has a right to paternally enforce, mostly because it has paternally enforced the opposite for the previous 2000 years.
No good Tristan. What about some tiny minority group that the majority really loves to beat up on? Say, the Roma in Europe.
There, the utility of racist enjoyment far exceeds the disutility of being discriminated against.
Utility isn’t the be all and end all of morality, but it also isn’t something to be ignored.
inequality is itself a moral problem because the millian sphere, in which you can do anything you want as long as you don’t hurt others, is a lie – because the things that you do that don’t seem to affect others, actually do.
Isn’t this self-contradictory? When you say that the reality of harm to others makes inequality a violation of the harm principle, you are arguing that it is problematic in its consequences, not inherently. The project, then, is the standard economic one of internalizing third party effects.
Utility isn’t the be all and end all of morality, but it also isn’t something to be ignored.
On the utility issue, I think it is entirely possible for people to have preferences that should not be satisfied, no matter how happy it would make them. How you formulate that, exactly, is tricky.
The protection of the unpopular may well be a democratic virtue, if not a necessity.
Various things I do may have some indirect effect on others, but that doesn’t violate the harm principle. Two men walking hand in hand down Cornmarket St may upset homophobes, but that is not a relevant or legitimate harm (if harm at all). The fact company directors and footballers ‘earn’ obscene salaries may upset those who compare themselves to such figures, but that’s irrelevant. They shouldn’t be doing so – that’s the kind of attitude that earns egalitarianism the ‘politics of envy’ tag…