Let them eat cake

There has been a recent increase in the number of news articles and big brother actions directed at executive pay. Is this merely another convenient enemy used to galvanize the lesser privileged behind a government gone mad with power? Perhaps, though I'd say it's more likely another tactic in the orchestrated effort to lower the quality of life for all of us.

Of course, the banner under which these efforts fly is one of helping the poor and middle class while bringing about fairness in business. The argument is that these people amass far more than they are entitled, stealing from those of us truly worthy of these riches. It's an easy case to make if we assume that these executives operate in a vacuum, that they dictate their own compensation, and that they bring no more value for their efforts than does the average pencil pusher.

The fact of the matter is that many of the companies where these cases are being made gross hundreds of millions of dollars each year. Each of these companies has guiding boards who determine how best to improve company performance. None of these boards behave in a way counter to the overall objectives of the company, including where compensation is concerned. If they consider a compensation package to be in excess of a given executive's performance, they alter it accordingly. If they find that the performance of an individual exceeds expectations, they will tend to increase the level of compensation.

However, unlike the executive, the average employee of a company isn't even compensated based on performance. This is due in part to the nearly impossible task of quantifying how the average employee's performance directly relates to a company's overall success. As a result, most companies provide cost of living increases rather than get tangled in the legal minefield of performance increases, except where sales can be directly attributed. For the executive, the overall performance of the company is a more direct reflection of their ability to manage and therefore a better barometer of their performance. Those most closely aligned to the expectations of performance, such as the company's board, are best equipped to determine the level of compensation.

Of course, all of this sidesteps the reason that politicians claim themselves better positioned to dictate executive pay: they believe that rallying the masses against the evil profiteers will garner more votes and, therefore, more power. What they fail to inform their hapless followers is that impacting compensation has the effect of diminishing a company's effectiveness which, in turn, impacts its ability to hire. Of course, this allows the politician to demonize business further, perpetuating their own political power.