Compass is right!

It\’s taken me some time, I admit, but I\’ve come to the conclusion that Compass, the lefty ginger group, is actually correct.

We should indeed have maximum wages.

For the first order effects would be very interesting indeed.

So, maximum wages would mean a cut in those top wages: that\’s the point, after all. So, that dosh that would have been paid out in top wages, where will it go?

Not to the low paid workers, that\’s for sure. We\’ve already got lots of those, companies are paying what they need to pay to get the number of workers they want. Similarly, that dosh isn\’t going to go to the customers: companies don\’t price on their costs, they price on demand.

So the only place that that dosh saved in not paying top peep\’s wages can go is into profits. More profits means higher returns for shareholders.

Which is, of course, a very good thing indeed. So, we should have maximum wages in order to stop people getting the full value of their labour and to enable to capitalist bastards to capture more of the sweat from their brow.

Compass: making the world better for capitalists.

10 comments on “Compass is right!

  1. So what about those Local Authority “CEO”s on six figure sums? They haven’t thought this one through at all, have they?

  2. Where us lefties object here would be in what you describe as “the full value of their labour”.

    Us lefties reckon that the reason for soaring exec pay is not a reward for some amazing talent but rent seeking by a corrupt elite to happen to be holding the levers of power.

    And as David points out, we’re all capitalist bastards now.

    Roue – The Compass high pay commission is going to include ublic sector execs.

  3. “Us lefties reckon that the reason for soaring exec pay is not a reward for some amazing talent but rent seeking by a corrupt elite to happen to be holding the levers of power”
    Very true. Fred Goodwin springs to mind.
    My cat could have done a better job at RBS than him.

  4. Those who suspect that “the reason for soaring exec pay is not a reward for some amazing talent but rent seeking by a corrupt elite to happen to be holding the levers of power” aren’t necessarily lefties. But being nonlefties , they do ask intelligently critical questions of their own suspicions, such as “why now?”

  5. “why now?”

    One possible reason is that shareholders have let go of the levers of power. In particular, now that most shares are owned indirectly via mutual funds, the actual shareholders are not given the opportunity to vote by the fund managers, and the fund managers often do not want to upset the company execs by voting against them, because those same execs decide which fund managers get paid to run the company pension funds. That’s assuming the fund manager even holds the shares long enough to care about what the management are doing!

    See http://www.vanguard.com/bogle_site/sp20090313.html

  6. “One possible reason is that shareholders have let go of the levers of power. In particular, now that most shares are owned indirectly via mutual funds, the actual shareholders are not given the opportunity to vote by the fund managers, and the fund managers often do not want to upset the company execs by voting against them”

    I agree. Before wittering like la Toynbee about high pay, how about the Government enacting a law that gave the beneficial shareholders the right to vote their shares (whether held in a nominee account or indirectly in a mutual fund) and to also cede the voting rights to any group of their choice. Then we pension fund holders could cede our votes to Compass or anyone else who we thought best reflected our views.

  7. Well, this is presumably tongue in cheek so who cares but…

    …if top people’s pay is a common cost, as seems plausible, then in a competitive market a reduction would flow through to lower prices, wouldn’t it?

    Companies don’t price on their own costs, but they do price on one another’s costs: marginal costs in the short term and average cost (equalised to LRMC through entry) in the long.

  8. “Us lefties reckon that the reason for soaring exec pay is not a reward for some amazing talent but rent seeking by a corrupt elite to happen to be holding the levers of power.”

    Don’t be silly. While it is undoubtedly true that there are barriers to entry in certain fields that give the incumbent management the kind of “rent-seeking” powers you talk about, it strikes me that shareholders, over the long run, are hardly likely to tolerate payouts of massive salaries for crummy investment returns. Ironically, it is precisely the sort of mercantilist policies that the left supports – such as attempts to restrict foreign takeovers of “national champions” – that shield management from competition and hence, breed complacency.

    There is a genuine, global market for talent, and in this globalised, increasingly fiercely competitive world, the pay for the top people will be high. Sure, we can and should remove barriers to entry, and one obvious way to do that would be to encourage small businesses to grow fast and challenge the supposed hegemony of Big Business; this means more free trade, not less; it means fewer regulations and lower, flatter taxes, not more of them, and so on.

    In other words, if high pay for supposedly underperforming CEOs riles you, then we need more capitalism, not the sort of statist ideas propogated by the likes of Compass.

  9. “it strikes me that shareholders, over the long run, are hardly likely to tolerate payouts of massive salaries for crummy investment return”

    That looks to me like support for the rent-seeking suggestion.

    I mean, don’t places with more patient capital, like Japan and Germany, actually have much lower levels of executive pay – and much, much lower ratios of executive/average worker pay – than in the UK and the US, where capital tends to be a little more flighty?

    And if shareholders taking the long-term view are the best way to determine a realistic level of executive pay, then shouldn’t we expect places with more of those sorts of shareholders to have more realistic rates of pay for CEOs?

    So what needs explaining is why UK and US CEOs are paid so much more than their counterparts with long-term share-holders.

    Doesn’t actually prove that there’s rent-seeking going on, but it doesn’t exactly make the idea look silly.

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