How to reward people fairly? 2

In my previous post I raised the question of people being overpaid for what they do. This raises the questions: What is a reasonable reward? Who decides? On what basis do they decide? How much does someone really need to accept the job? Who pays?

The last question is the most straightforward for a company; it is the owners, or the shareholders, who pay. They pay for the salaries, they reap the rewards of success, and they pay the price of failure. Now, you may say, they can afford it, and sometimes they can, but also stop and think about how much of this investment came from pension funds. The managers of the investment funds do not lose, but rather it is ultimately the pensioners, who can least afford it.

Looking at who decides, we now see what I believe is a real problem: the people who set the boss’s salary are often either directly or indirectly setting their own rewards. If the investors vote, it is the managers of the investment funds who actually do the voting, and their salaries and rewards are usually set according “to what is general in the market”, but they in turn are creating the market price by setting CEO salaries/rewards in the companies on which they sit on the Boards. Anyone see a hint of a conflict of interest here?

However, it is the question of what is reasonable wherein the problem lies. A comment on my first post seemed to think that $25 million per annum was reasonable, obviously for a CEO of a really major company. The question now is, why? As I noted in the previous post, someone like Steve Jobs is almost unique, and deserves whatever he can get. There are also some that run small companies, and I have heard of one or two in the finance industry that have made extraordinary returns for their investors, and while they end up billionaires, I see that what they get as quite fair. They made the money in circumstances where just about everyone else was losing it, so they deserve to keep a good fraction of it. A really stellar performance at least justifies stellar returns. The trouble is, only too many get into such positions and turn in quite disastrous performances when the going gets tough. Worse than that, in some cases they can turn in near fraudulent performances, and fraud is probably the least punished crime.

Does fairness matter? I think it will if there is a real resource shortage, as is almost inevitable in the future? If supply cannot meet possible demand, those with large amounts of money have an extremely unfair advantage. To get around this, in my future history ebooks, I have introduced in A Face on Cydonia, a somewhat different system of payment. In this, you can negotiate whatever payment you can get, but there is rationing of all resource-constrained goods, and everyone gets personalized coupons that must be used to acquire them. That means that while higher salaries lead to the ability to purchase more fashionable things, and some other objects such as art that are not couponed, money itself becomes less of a goal. There are no coupons for private jets and so on. Of course, this creates some additional problems that will be part of the plots of future ebooks, however if anyone wants to suggest some, and if they are useful enough to incorporate in some of the follow-up novels, I promise your suggestions will be acknowledged.


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