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Put A Cap On CEO Pay

The below article comes from Business Week Magazine online, printed today. In it, the writer channels the late author, management consultant, and self-described “social ecologist," Peter Drucker (November 19, 1909–November 11, 2005), whose writings predicted many of the major socioeconomic developments of the late twentieth century.

In short, the article calls for a reasonable cap on overall CEO compensation, something which I'm definitely pro.

Here's a snippet:

... Last year, according to a report just issued by the Institute for Policy Studies and United for a Fair Economy, S&P 500 CEOs received pay packages worth, on average, $10.5 million. That was 344 times the earnings of the average American worker.

What Drucker thought was more appropriate was a ratio around 25-to-1 (as he suggested in a 1977 article) or 20-to-1 (as he expressed in a 1984 essay and several times thereafter). Widen the pay gap much beyond that, Drucker asserted, and it makes it difficult to foster the kind of teamwork that most businesses require to succeed.

"I'm not talking about the bitter feelings of the people on the plant floor," Drucker told a reporter in 2004. "They're convinced that their bosses are crooks anyway. It's the midlevel management that is incredibly disillusioned" by CEO compensation that seems to have no bounds.

This is especially true, Drucker explained in an earlier interview, when CEOs pocket huge sums while laying off workers. That kind of action, he said, is "morally unforgivable."

In the mid-1980s, after consulting with Drucker, furniture maker Herman Miller agreed that its CEO's pay would be restricted to 20 times the average of all its employees. "The subtle part of this limit was the message to the CEO: If you want to get more pay, you need to do it by raising the average pay of everyone at the company..."

Read it all here: CAP CEO PAY


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