America doesn't just make political promises, it makes economic promises too. They were best summed up (as a lot of things are) by Bill Clinton: if you work hard and play by the rules you should be able to succeed.
But it's not working that way right now. Not by a long shot.
It has recently been reported that the median compensation of the CEOs at 200 of the largest publicly held companies in America in 2012 was $15 million, and that's up 26% from the year before.
Meanwhile, the federal minimum wage stands at just $7.25 per hour. It has been there since 2009, though some states (not Wisconsin) have increased the wage on their own. The numbers work out neatly. A full time worker making the federal minimum wage made $15,000 last year. The median compensation for a big time CEO for that same year was exactly 1000 times more.
It's no secret that the concentration of wealth and income is the greatest it has been in the U.S. in more than eighty years. That's what the whole Occupy movement was about.
But this isn't just about fairness; it's also about the health of our economy. In a perfect economic system, compensation and reward would be directly related to productivity. Produce more, get paid more. Produce less, earn less. No system will deliver that result perfectly, but in America today it isn't even close to working that way. For example, hedge fund executives and other money managers are lavishly compensated for doing little or nothing that benefits the economy, and sometimes they are richly rewarded for helping ruin it.
And there is no relationship between CEO compensation and their performance in their jobs. For example, Lawrence J. Ellison of Oracle, the nation's top paid CEO, got a 24% bump in overall compensation last year even though shareholders of his company took a 22% hit.
Now, the ideologically pure among you will argue that this is just the free market at work. If shareholders donâ€™t like the performance of their managers they can reduce their pay or fire them. But that's not the way this is working in practice. The reason CEO pay packages have no relationship to performance is that they are set by boards of directors largely made up of other CEOs or former CEOs who have a personal interest in raising the bar. In this case, a rising tide lifts their boats and nobody else's and that's fine with them.
One answer is to change federal law to give average shareholders more say over manager compensation.
And here's another suggestion on how to restore some balance and get us closer to the ideal of paying for productivity: link top marginal income tax rates to the minimum wage.
Here's how it might work. As I mentioned earlier, a person working full time at minimum wage makes about $15,000 a year. The top marginal federal income tax rate is just under 40%. So, what if we raised that top marginal rate as incomes rose relative to the minimum wage? For example, if I made 1000 times the minimum wage, or about $15 million a year (the median compensation for a top CEO last year), my marginal rate might be 90%. If I made 500 times the minimum wage, or $7.5 million, it might be 80% and so on.
Doing this would accomplish several things. First, over night it would create powerful advocates for a higher minimum wage. All of a sudden influential CEOs would discover that it was in their interest for the lowest paid workers to do better. Second, it might provide at least some brake on out-of-control CEO salaries. Most importantly, it could help restore a sense that we're all in this together, and we all get to share in the rewards of a growing economy.
Look, I'm not against healthy salaries and other forms of compensation for people who are producing greater societal wealth. But what we have now is a system where you can work hard, play by all the rules, increase your productivity and find yourself treading water while people who provide little in the way of productive labor make millions.
That's not what America promises and it won't produce a stronger economy. We can only improve our economy by living up to the economic promises of our country.