Executive Salaries

I am actually quite skeptical of the idea that CEOs of large companies -- large multinational companies -- 'deserve' their larger salaries or that these salaries reflect their 'value'. Look at the usual arguments that are given to defend high salaries (the same arguments are used to defend the idea that some earn 'too much')

1. 'We need to pay high salaries because our CEO has performed really well.'

• This does not explain why you'd need to pay the CEO more than an office clerk who has performed really well.
  

2. 'Our CEO has changed the course of our company such that it performed really well'.

• Assuming that what is meant that without any change in policy the company would have performed worse, it still is a fallacy (to be precise, the fallacy of composition) to argue that it is due to the activities of the CEO. Market forces, other individual, new opportunities all contribute, and while it may be true that without the activities of the CEO no additional revenue would have been realized, it is mistaken to say that these revenues are all up to his activities. (It is like saying that since without ploughing and sowing and weeding your land would not bear any fruit, therefore, all the increase in value is due to the ploughing, sowing and weeding -- as if the fertility of the ground and climatic circumstances were irrelevant).
• But perhaps all that is meant that the base of comparison is how another CEO would have performed under these circumstances. I submit that one will never know how I or others would have managed Microsoft and that therefore Bill Gates' exorbitant salary cannot be justified by reference how I (or others) would have done.

3. 'Our CEO is worth his salary, because if he would get less, he would leave.' of more general 'The salaries of our CEO reflects the scarcity of managerial talent at t his level'.

• This is more interesting as an argument. The idea is that the scarcity determines the 'worth' or 'value' of the CEO, where this scarcity is expressed by the price the CEO can demand for his services. However, again it does not follow. One could argue that this holds under ideal market condition, where there are no insider/outsider effects or friction costs when a firm wants to hire a cheaper CEO of sufficient quality. However, in the real world the 'market' for managerial talent is not ideal. As a result, the price a potential CEO can demand reflects also things other than his or her scarce talent as a manager. Furthermore, it is unclear if there really is a 'market' for these positions as this professor from Harvard Business School whose name I keep forgetting argues.

In short, there are no good moral arguments as to why corporate top brass is entitled to the high salaries they receive. From a moral point of view, differences in reward for labor seem arbitrary. Does this mean that the socialists are right and that, therefore, there is nothing wrong with taxing CEOs heavily in order to 'correct' the income distribution? No, because that would require that there is an uncontroversial criterion that determines what and how much each person is entitled to. If these arguments don't work to justify high incomes, they also don't work to justify lower incomes. Furthermore, people have a prima facie claim to the salary that they receive: you need arguments to take some away from them.

That leaves only two sort of arguments for those who want to do something about these absurdly high incomes:

1. 'If we leave this money in the hands of private individuals they will not do as much good as we, the State, will do with it. Therefore, we should tax the (very) rich.

• Given recent discussions on the efficiency of state sponsored goods and services, it will be tough to convince people of this.

2. People who earn so much money should be praised if they contribute to the common good (e.g., fund a university or a chair in philosophy -- I know of one worthy candidate...) and be ashamed if they don't. In other words, we should encourage Bill Gates to give away chunks of his arbitrarily received wealth and praise him in exchange for his magnanimity. And if he were not, we should speak badly of him as somebody who does not realize that it is all a fluke and that it is the result of social circumstances that he was able to create this fortune. He would be vicious and (what is the opposite of magnanimity).

• Better, although you still have the inequity that the Bill Gates' of this world receiving lavish praise and the hard working hoi polloi will never be able to demonstrate their magnanimity. Virtue -- or at least the opportunity for virtue -- is distributed unequally (and perhaps because of that, unfairly?).