Minimum Wage Alternative

[EagleFan]

I have been thinking about this for a while. It keeps coming back to me when you hear about families no longer able to make it with just one income provider.

How does the following solution, in place of a minimum wage sound?

Enact a law that allows companies to pay the people who make the most only X times higher than the lowest paid employee of the company. If this is a reasonable number, teh top executives could still make high enough salaries to allow you to aspire to without it being completely out of whack like it is now.

Example: A company that I worked for cut raises down to under 2% and stopped bonuses because they "were not doing well enough". A month later the salaries and bonuses of the executives came out as it is a publicly traded company. The guy running the place received a 50% increase in salary and his bonus jumped 400%. I'm sorry, but something like that really needs to be illegal.

I know there may be loopholes, but they need to be found and closed.

I also know that I will be attacked by the whole free market crowd but this is still free market but if you want to pay your top guys higher than you have to do the same for the low end.

My biggest concern would be inflation as who would trust a company to actually obey the rules within their normal budget and I could see them just increase prices. Outsourcing and consulting would have to be addressed as well.

This is not a set in stone idea, more of a building block. I leave the actual workings to those who would have better access to the real numbers and laws (for loopholes and inflation ) that could make this work.

I can't believe that back in the 50's and earlier there were so many execs making obecene money since the average worker could support their family (not counting the depression).


Jump on me if you like but what I was really hoping for is constructive ideas for making the system work, be it an alternative or adding upon the idea. Both sides of the political scale are welcomed and encouraged.

[ISiddiqui]

this is still free market but if you want to pay your top guys higher than you have to do the same for the low end.

Hmmm.... how does that work?

[JeffW]

A better alternative is to get rid of minimum wage altogether. Minimum wages of any kind serve to increase unemployment(and have other subtler economic disadvantages).

Wikipedia Summary (http://en.wikipedia.org/wiki/Minimum_wage#Debate_over_consequences_of_minimum_wage_laws)

[14ers]

The guy running the place received a 50% increase in salary and his bonus jumped 400%.
Last year my income was 40% Salary and 60% Bonus. I have also had "Bad" years where it was 80% Salary 20% Bonus. Most of my Bonus is paid in Stock. My Bonus is also basically 100% performance based.

I am kind of curious as to how you would figure your minimum Wage on my Revenue. How may people making minimum wage would want 60% of their salary paid in stock?

[JHandley]

I also know that I will be attacked by the whole free market crowd but this is still free market but if you want to pay your top guys higher than you have to do the same for the low end.

I'm not sure you understand what a free market is. Having your salary based on a multiple what the mailroom clerk makes does not equal being able to negotiate for the highest salary you can get based on what the market will bear.


My biggest concern would be inflation as who would trust a company to actually obey the rules within their normal budget and I could see them just increase prices. Outsourcing and consulting would have to be addressed as well.

This is not a set in stone idea, more of a building block. I leave the actual workings to those who would have better access to the real numbers and laws (for loopholes and inflation ) that could make this work.

A major part of this idea is that there will be "someone" to figure out how to fix the flaws in this idea.



I can't believe that back in the 50's and earlier there were so many execs making obecene money since the average worker could support their family (not counting the depression).

People were poor in the 50's as well. The disparity isn't in how much more the upper class made than the lower class in the 50's, it's how much more expensive/debt burdened the lower class is now.




Jump on me if you like but what I was really hoping for is constructive ideas for making the system work, be it an alternative or adding upon the idea. Both sides of the political scale are welcomed and encouraged.

I'm not trying to pile on, I just think you need to give much more thought to ideas like this.

[Vinatieri for Prez]

A better alternative is to get rid of minimum wage altogether. Minimum wages of any kind serve to increase unemployment(and have other subtler economic disadvantages).

Wikipedia Summary (http://en.wikipedia.org/wiki/Minimum_wage#Debate_over_consequences_of_minimum_wage_laws)

False when the minimum wage is as ridiculously low as it is now.

And then let's get rid of mandatory overtime and work breaks, workers compensation payments, right to family leave, because that must also lead to more unemployment.

[Dutch]

I'm not the expert, but others here seem to be and hopefully know the answers to some questions I have.

What % of the working population makes minimum wage?

What % of employees aged 26 or older are making minimum wage?

What % of minimum wage employees are getting tips?

What % of minimum wage employees get progressive raises?

What % of minimum wage employees today will still be making minimum wage (without tips) two years from now?

I remember when I was making minimum wage in high school, that I got a raise 3-6 months later and continued to get them until I joined the military after high school.

I honestly want to better understand the issue because right now, I'm against raising minimum wage, but I'm not opposed to changing my mind if I have a better understanding of why we should change it.

[stevew]

One issue that has always bothered me is how companies are allowed to pay their workers a wage that still enables them to draw federal benefits like food stamps, heating assistance, insurance, etc. It doesn't make too much sense that the government is de facto subsidizing low income jobs and companies are able to still profit.

[JPhillips]

EF: I don't think this idea will work, but I'm all for controlling excessive compensation packages. CEO pay is out of control. Take this example:

CEOs at California's largest 100 public companies took home a collective $1.1 billion in 2004, up almost 20% from 2003. That compares with the 2.9% raise that the average California worker saw last year, according to the Economic Policy Institute in Washington.

One of the suggestions I read was a requirement to offer all non-salary compensation to all company employees, basically meaning that everyone at the company would get the same stock option price. That would generally lead companies to put more compensation in salary where it would be taxed as income and subject to much more visibility.

The CEO compensation system is so corrupt because of the very small group of interconnected people making the decisions. There is little evidence that the skills of todays CEOs are up up to 100 times better than those in the past.

[QuikSand]

While I'm not in favor of anything of this sort myself, I would offer that there are more modest ways to try to do something like this.

Corporations pay taxes on their net profits, after paying all expenses. Currently, any employee salary and benefit are part of those expenses, and drop right off the bottom line. In theory, if you wanted to set some sort of disincentive for widely disparate pay in the company, you could set tax laws such that salary paid to any employee in excess of some multiple of the lowest salary paid to an employee (defining terms in some fair manner) would have to be added back onto the company's net taxable income. Essentially, you say -- pay your top guys whatever you like, but you can't do so and still be dropping your tax liability.

Of course, corporate taxation is a slippery slope to begin with, and something liek this would probably be riddled with implementation problems, but in concept, it's a policy way to advance what the original poster is seeking, without guoing quite as far as to have the government mandate some sort of maximum wage.

[maxwarrior]

Try these links for minimum wage data:

http://www.dol.gov/esa/whd/flsa/

http://www.dol.gov/esa/minwage/q-a.htm

http://www.bls.gov/cps/minwage2005.htm

[Dutch]

Try these links for minimum wage data:

http://www.dol.gov/esa/whd/flsa/

http://www.dol.gov/esa/minwage/q-a.htm

http://www.bls.gov/cps/minwage2005.htm

That last one seems perfect, thanks for the link.

[wade moore]

EF, I know you're trying here, but wow.. this has "Un-American" written all over it. I don't mean that you are, but that this idea flies in the face of all that is American in the marketplace. You say there is still a free marketplace still, but definately not. This seems to be so far from capitalism and free-market that I can't even figure out how to change it to something that isn't.

I'm against any laws that limit salary (or profit) directly.

[Greyroofoo]

I say its a pretty good idea.

[Dutch]

To answer my own questions with the help of maxwarrior.

What % of the working population makes minimum wage?

Working Age Employed Americans - 125,790,000
Minimum Wage or less - 1,879,000 (479,000 were @ strict minimum wage)

% = 1.5% make minimum wage or less

What % of employees aged 26 or older are making minimum wage?

Minimum Wage or Less Workers = 1,879,000
Aged 26 years or older = 876,000

% = 46.6% of minimum wage workers are 26 or older.

What % of minimum wage employees are getting tips?

Not sure about this one. Possible assumption: laws dictate that if you receive tips, you can be placed at an hourly wage below minimum wage, provided you make at least minimum wage.

Those making less than minimum wage = 73.3% (presumably a large majority of these are service industry/tip workers.

What % of minimum wage employees get progressive raises?

Not sure. But if there are 1 million minimum wage workers under 25 and 900,000 minimum wage workers over 25, that seems to be a sign that it's not a stagnant salary for most. Looks like quite a good bit of those youth making minimum wage will earn at least more than minimum wage as their careers/lives progress.

What % of minimum wage employees today will still be making minimum wage (without tips) two years from now?

No way of knowing, but again, I don't think it's an alarming number.

One logical conclusion is that progression seems to be the key. In my opinion, in the American work force at least, minimum wage is not the end point, but the starting point in most American workers careers.

[Galaxy]

Dutch,

To add on:

1) What are the skills/education of minimum wage earners? Are they taking advantage of programs to improve themselves?

2) Are they having families well they are earning low wages? Are they able to support themselves before having families?

3) How much value does a CEO or high-level exec/manager have more so than a regular minimum wage worker?

[Crapshoot]

A better way, instead of a minimum wage increase, is to increase the EIC credit - offering a lowering of the tax rate for anyone making min wage or close to it. It has the added effect of reducing government tax revenue, which is ballooning.

[Galaxy]

EF: I don't think this idea will work, but I'm all for controlling excessive compensation packages. CEO pay is out of control. Take this example:



One of the suggestions I read was a requirement to offer all non-salary compensation to all company employees, basically meaning that everyone at the company would get the same stock option price. That would generally lead companies to put more compensation in salary where it would be taxed as income and subject to much more visibility.

The CEO compensation system is so corrupt because of the very small group of interconnected people making the decisions. There is little evidence that the skills of todays CEOs are up up to 100 times better than those in the past.


What would be fair CEO compensation? I do agree that the stock back-dating and those types things need to be fixed, but how do you value what a CEO is worth? Jack Welch, former CEO of GE and one of the best minds in the last century, walked away with around $400 million total net worth when he left. However, he still received a lot of heat depsite his incredible job of making GE a tremedous, outstanding power and increasing the wealth of both the company and shareholders over his run.

[wade moore]

Dutch,
3) How much value does a CEO or high-level exec/manager have more so than a regular minimum wage worker?

This question has no revelance to how much a company should be able to pay a high-level exec/manager, sorry.

With these rules - you might as well just make all of the companies run by the government. Seriously, the idea of limiting pay is just so foreign and absurd to me I don't even know how to begin to explain to someone why it has no business being in place in America.

[Galaxy]

This question has no revelance to how much a company should be able to pay a high-level exec/manager, sorry.

With these rules - you might as well just make all of the companies run by the government. Seriously, the idea of limiting pay is just so foreign and absurd to me I don't even know how to begin to explain to someone why it has no business being in place in America.


I agree with you 100%. I was just posing that question.

[SportsDino]

Even though I think most CEOs are paid more than they are worth, I don't think this is the right idea.

I think a better line to pursue would be to push companies (or the corrupt board of directors) to write new executive contracts where all bonuses and increases in compensation (other than perhaps a planned percentage salary boost every year) be directly tied to the company's growth in profits for that year. This should not be enforced by the government, ideally it would be REQUESTED by the shareholders of said companies.

Tie executive compensation, at least partially, into the bottom line, to me this make sense. An executives value is how well they can think up ways to make the company stronger. Why should their bonus jump 400% if the company showed a 25% decrease in profits over last year? What is their real value to the company if they cannot either grow it, or reduce the effect of negative downturns (some losses may be beyond the executives control, but they are still responsible for making the best of what they got).

This of course won't be implemented because of the good old boy network in the upper levels of corporate management (the 'watchdog' for the shareholders is essentially another toadie of the CEO in many companies). But from an economics perspective, it is what shareholders should insist upon. The current system has no economic incentives to encourage the behaviour of top executives, compensation is based not on performance, but arbitrary exploitation of the companies resources to serve the top few in positions of power in the company and investing community.

[SportsDino]

I know to an extent my post above is already implemented, a lot of contracts no doubt have targets built into them to trigger the various bonuses. I'm just advocating it should be done more, with a closer tie to the bottom line. I'm all in favor of having additional bonuses for reaching certain goals, like increasing car sales by X%, or getting a big merger, or some such junk. Just make it more transparent to everyone involved that X compensation is due to Y cause.

[M GO BLUE!!!]

Those people at lower wage scales (like myself) need to just be happy that we have jobs today. It may be true that I actually make less than I did when I started the job and have no hope of a wage increase, it could be worse.

But then if I get paid 1/500th of what you get, I shouldn't be expected to bust my ass either. You get what you pay for.

[SportsDino]

Being thankful for just having a job is the biggest thing they are using to keep wages down though, the lower class of workers are probably busting their butt harder than the top end because if they fail to meet goals they simply get fired. That is incentive enough to keep them working, so pay raises become a moot point.

So the only real force that can rein in executive compensation is the investor side of the economy, and really they haven't felt the need to shake things up, they are content to pretty much ride an economic roller coaster (which after diversification manages to trend up). There is little real interest in what any particular company is paying its executives, regardless of their worth.

Wages on the bottom end are unlikely to increase until there is some competition to raise prices. Given a possible outsourcing merry go round, it could be possible that a company just shifts around the world leaving behind depressions in its wake, just to return to the depressed areas later again when they will accept low wages. So really, there is no real 'positive wage competition' possible at the lower skill levels of labor, other than the cost of a company to relocate a plant in another country that will work for less. Policies by the current administration have only helped that along (no taxes on dividends and other corporate breaks are not dependent on where you place your production).

[M GO BLUE!!!]

Prices will increase, as will top executive salaries.

Workers will continue to live on current wages or slight increases which do not meet inflation.

If they choose not to, they can easily be replaced by someone who the company brings in from India or China, or the job can be completely moved overseas.

That's just the American way.

[Airhog]

I think a better question to pose, is how many americans make the minimum liveable wage in their area. For example, in oklahoma city area, I would put the livable minimum wage at about 8-9 dollars an hour. I would say that minimum wage is not a livable wage, and I would imagine that many more people only make 80% of the liveable wage in their area.

[Galaxy]

I would say that minimum wage is not a livable wage, and I would imagine that many more people only make 80% of the liveable wage in their area.

Really think it's "many more people"? Just am curious.

[JPhillips]

Galaxy: I'll give you Welch, but what about the CEOs of companies that don't perform well and still get huge compensation and severance packages? The problem is that overall CEO pay isn't connected to performance. Its set by how much they can get away with and that's because the number of people on corporate boards is fairly small and interconnected.

The one example where I know enough about the inner workings is Dick Grasso. As he kept getting large raises the board never questioned it. They hired consulting firms that suggested huge raises and they always voted unanamously in favor of them. Then the same people would go back to their companies and get raises based on the same consultants and often the same baord members. The whole system is corrupt.

That's why I am in favor of any system that makes the compensation more transparent to investors and the general public. The byzantine compensation structures that are used make it hard for people to understand how much most CEOs are making. It won't solve everything, but its a good place to start. I also favor offering option prices to everyone in the company. That won't change the executive pay much, but at least everyone can get in on the deal. Finally I would support giving bonus points in the federal contract bidding process to companies that don't exceed 200-1 pay differential between highest and lowest paid workers.

[Galaxy]

Galaxy: I'll give you Welch, but what about the CEOs of companies that don't perform well and still get huge compensation and severance packages? The problem is that overall CEO pay isn't connected to performance. Its set by how much they can get away with and that's because the number of people on corporate boards is fairly small and interconnected.

The one example where I know enough about the inner workings is Dick Grasso. As he kept getting large raises the board never questioned it. They hired consulting firms that suggested huge raises and they always voted unanamously in favor of them. Then the same people would go back to their companies and get raises based on the same consultants and often the same baord members. The whole system is corrupt.

That's why I am in favor of any system that makes the compensation more transparent to investors and the general public. The byzantine compensation structures that are used make it hard for people to understand how much most CEOs are making. It won't solve everything, but its a good place to start. I also favor offering option prices to everyone in the company. That won't change the executive pay much, but at least everyone can get in on the deal. Finally I would support giving bonus points in the federal contract bidding process to companies that don't exceed 200-1 pay differential between highest and lowest paid workers.


I agree with you on the lack of relationship of performance and compensation and the lack of "oversight" by the board. I thought you wanted to intervene fully and restrict free-market principles.

Correct me if I'm wrong, but the stock options that are used is when a company offers a certain number of shares at a certain price to be execrised by a certain date. If the price rises during this period, the buyer would still get the price at the agreed upon price. So, if you and your company offered me the option to buy 100 shares for a price of $10.00 a share by 10/31; I decided to execrise 50 shares, depsite the stock being $15.00 on this day, at $10.00 a share on 10/30, I would pay $500 for the shares. However, my shares that I now own are worth $750.

If this is true, wouldn't the company have to pay the difference? Or do they just add the number of shares that are sold through a stock option offering to the existing total number of shares?

[MrBigglesworth]

JPhillips and SportsDino already discussed the problem that I see with CEO salaries: it is not a free market system to begin with. I'm not really sure how to deal with it, but I don't like the idea at all of limiting salaries.

[Logan]

If this is true, wouldn't the company have to pay the difference? Or do they just add the number of shares that are sold through a stock option offering to the existing total number of shares?

I believe that those shares come from an already withheld reserve of shares. Could be wrong though...

[Galaxy]

I believe that those shares come from an already withheld reserve of shares. Could be wrong though...

So, they are already "covered"?

[ISiddiqui]

I think Quiksand's proposal is the best if you want to deal with this. Just make the highest end of the salary (done by seeing how much is above a certain multiple of the lowest salary) included in taxable profits of the company