Compensation Excess

            According to a recent survey, 41% of American voters prefer socialism to capitalism. That number is far worse among voters under 25. That’s not surprising. The virtues of socialism peached by popular politicians like Bernie Sanders and Alexandria Ocasio-Cortez and parroted by leftists in the media are viewed as utopia by starry-eyed adolescents and the key to equality by adults who are totally ignorant of the failure of socialism throughout history.

            Socialism is the politics of envy. It promises falsely that it is the way to equality, as if confiscation of wealth for purposes of redistribution will achieve its goal. We can understand how that envy might be a natural reaction to the outrageous compensation of athletes, entertainers, and CEOs. Is Bryce Harper of the Phillies really worth $330 million? What did George Clooney really do to earn $239 million last year?  Did Jeff Bezos really earn his net worth of $154 billion? It’s just not fair, is it? Why shouldn’t we be envious?

            While it is understandable that people should decry such unfathomable excess, socialist politicians usually target big business and Wall Street. That’s where you’ll find the people who don’t pay their fair share, they say, irrespective of the fact that the top 1% pay 24% of income taxes, the top 10% pay 53%, and the top 20% pay 85%. For socialists that’s not enough. They ignore the fact that the top earners are the ones who produce the wealth; take away their incentive to produce, and what you’re left with in the extreme is everybody’s equal share of poverty.

            But let’s take one idea that might convince the envious of the fairness of the apparent inequality of corporate compensation. Generally, the millions that CEOs earn are tied to their performance. For example, one of the highest-paid business executives in 2018 was Walt Disney’s CEO Robert Iger. His pay was $65.6 million, but 90% of that was tied to his performance as head of a company that returned 20.4% to its shareholders last year. And that’s as it should be.

            The most extreme example of compensation tied to performance has to be Doug Parker, chief executive of American Airlines. His salary last year was $0. However, he earned $12 million in company stock, because the shares he received increased in value. In other words, Parker made money last year only because American Airlines under his leadership had a good year. If AA had done poorly, the value of Mr. Parker’s shares would have gone down. I wonder how many executives would be willing to put their performance on the line like him.