I just finished reading a stock proxy. Like most proxies, it has a section on compensation for its five named executive officers. Also, not atypically, this section was a full third the length of the full proxy, in this case despite the fact that there were two appendices with a restatement of the articles of incorporation. What is particularly relevant to current events in this proxy, was that the compensation section, like all such sections I have read, had no discussion of how executive compensation compares to the compensation of any of the other employees of the company. In the corporate pay structure there is no connection between executive compensation, and worker compensation.
It gets worse. Worker compensation is a cost, and a well-run business does what it can to limit this cost. This includes automation, outsourcing, temporary or part-time employment without benefits, layoffs, and even efforts to eliminate minimum wage laws. On the other hand, the compensation philosophy espoused in proxies almost guarantees pressure to increase executive pay. Companies present themselves as being in competition to attract and hold scarce executive talent. Every compensation section I have read has an extensive discussion of the pay in comparable companies. To ensure company success, target compensation for their executives is almost always at or above the median of their competitive group. At or above, that is the rub. All companies cannot be at or above the median, at least not all the time. A company can, however, raise its pay to the median or above at a particular time. It will then be at or above the median until its competitors raise their executive pay so that they are at or above the median.
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