Introduction
Over the past forty years, the income gap between Chief Executive Officer (CEO) compensation and the average worker has grown considerably. In 1848, Karl Marx warned, in the Communist Manifesto, that our current system of production and ownership was unsustainable.
The bourgeoisie, wherever it has got the upper hand, has put an end to all feudal, patriarchal, idyllic relations. It has pitilessly torn asunder the motley feudal ties that bound man to his "natural superiors", and has left no other nexus between people than naked self-interest, than callous "cash payment". It has drowned out the most heavenly ecstacies of religious fervor, of chivalrous enthusiasm, of philistine sentimentalism, in the icy water of egotistical calculation. It has resolved personal worth into exchange value, and in place of the numberless indefeasible chartered freedoms, has set up that single, unconscionable freedom -- Free Trade. In one word, for exploitation, veiled by religious and political illusions, it has substituted naked, shameless, direct, brutal exploitation.
I believe that these prophetic words explain the sentiment necessary for one group of individuals to create exorbitant amounts of personal wealth, while other members of the organization suffer. One major problem exists because most people believe that our current compensation disparities are natural and historically accurate. Americans have adopted a fatalistic posture in an attempt to survive with rising costs and stagnant income, while the executives they serve continue to increase their personal wealth.
An article written by Rank (2009) raises an interesting question concerning the definition of poverty versus wealth. Rank states that the term “working poor” is inaccurate when discussing the income disparities between executives and workers because it fails to take government transfers, such as housing vouchers and food stamps, into consideration. Rank further states that when these subsidies are taken into consideration, the income gap narrows considerably. Rank believes that Webster’s current definition of poverty is inaccurate. According to Rank (2009), Webster’s dictionary defines poverty as “the lack of means of subsistence” with “subsistence” meaning “that which supplies the means of living”. He then goes on to state that according to this definition, poverty has essentially disappeared. He believes that a more accurate description of poverty is found with the term “relative poverty”. Currently, Merriam Webster defines poverty from a more “relative” point of view. Merriam-Webster defines poverty as the state of one who lacks a usual or socially acceptable amount of money or material possessions” (Merriam-Webster, 2010). The argument would now be shifted to defining what is a “socially acceptable” amount money; however, I am not interested in a socially acceptable amount because we are currently incapable of setting such an amount. We have socially accepted an income disparity of CEO pay being more than 200 times that of the average worker, in the same company.
A recent study conducted by the Institute for Policy Studies (IPS) shows the compensation packages for CEOs that needed and, subsequently, accepted bailout money for the US government. The following are a few of their key discoveries:
· The Bounty for Bailout Barons: From 2006 through 2008, the top five executives at the 20 banks that have accepted the most federal bailout dollars since the meltdown averaged $32 million each in personal compensation. One hundred average U.S. workers would have to labor over 1,000 years to make as much as these 100 executives made in three.
· Layoff Leaders: Since January 1, 2008, the top 20 financial industry recipients of bailout aid have together laid off more than 160,000 employees. In 2008, the 20 CEOs at these firms each averaged $13.8 million, for a collective total of over a quarter-billion dollars in compensation.
· Wall Street Pay Dwarfs Regulator Pay: These 20 CEOs averaged 85 times more pay than the regulators who direct the Securities and Exchange Commission and the Federal Deposit Insurance Corporation. These two agencies, many analysts agree, have largely lacked the experienced and committed staff they need to protect average Americans from financial industry recklessness.
· A Generation Ago: Typical big-time corporate CEOs seldom made more than 30 or 40 times what their workers took home. In 2008, the IPS report shows, top executives averaged 319 times more than average U.S. worker pay (Anderson, Cavanagh, Collins, & Pizzigati, 2009).
It becomes clear that some of the CEOs have abused the help provided by US citizens, at the expense of these same citizens. The question now arises, how can one group of people believe that they have a fundamental right to the work of others; moreover, why does the oppressed group tolerate such a system? In this paper we will look into the mind state of the CEO (oppressor) and the average worker (oppressed), via various literatures to explain this anomaly.
2.0 Oppressor
Oppression is defined as unjust or cruel exercise of authority or power; something that oppresses especially in being an unjust or excessive exercise of power (Merriam-Webster, 2010). Given this working definition of oppression, it now follows that aforementioned CEOs have unjustly exercised their power to obtain personal wealth at the expense of others. Still the question remains whether or not the workers of that company are oppressed.
In the Pedagogy of the Oppressed, Paulo Freire states the oppressor converts everything and everyone into a means of production.
In their unrestrained eagerness to possess, the oppressors develop the conviction that it is possible for them to transform everything into objects of their purchasing power; hence their strictly materialistic concept of existence. Money is the measure of all things, and profit the primary goal. For the oppressors, what is worthwhile is to have more -- always more -- even at the cost of the oppressed having less or having nothing. For them, to be is to have and to be the class of the "haves" (Freire, 1970, 58).
Unfortunately, this has become common practice for the average Standard and Poor’s 500 CEOs. Despite their poor performance and struggling business/industry, they still managed to give themselves enormous salaries and bonuses while the average pay for working Americans have shown little to no growth. According to the US Census Bureau, people in the top 5th income percentile have seen an increase of 98% between 1990 to 2005 while people in the 3rd percentile saw an increase of 66% and the bottom 1st percentile saw an increase of 58%. In addition, the top 5% of all Americans realized an income increase of 124% (US Census Bureau, 2006).
Analysis
The oppressor is an interesting group because they are incapable of seeing themselves as the oppressor. In lieu of such a derogatory title, they envision themselves as the person whom had enough initiative and drive to create wealth and opportunity. They are too inept to see themselves as the person who subjugates another person. They are more inclined to see their fellow citizen as lazy and incompetent rather than a person that has been systematically held back. There are countless examples of such ideology. Andrew Carnegie explicitly promoted a plutocracy where the majority of the nation’s wealth was in the hands of a few individuals. “We accept and welcome, therefore, as conditions to which we must accommodate ourselves, great inequality of environment, the concentration of business, industrial and commercial, in the hands of a few, and the law of competition between these, as being not only beneficial, but essential for the future progress of the race” (Carnegie, 1889). This thought process has permeated throughout corporate America and seeped into the personal lives of citizens. The belief that the average citizen is incapable of changing the high fuel prices, poor interest rates on home and auto loans, and an income disparity greater than any other developed country, is made possible because the oppressor has gotten the people (by “people” I mean the bottom 95% of the American population) to believe that they can one day join the ranks of the “ruling” class (top 5%). With this belief, they ferociously defend the status quo, thus perpetuating a cycle of inequality.
2.1 Tournament Theory
While the analysis of the oppressor explains why the oppressed accept the conditions that the oppressor have set forth, it does not explain why the ruling class allows some of its members to prosper despite their corporate performance. One theory that will be analyzed here is referred to as the tournament theory. The tournament theory states that the CEO’s salary is fixed due to the competition necessary to reach the apex of a corporation. Once they have achieved this position, they are no longer held to the same standard as the bottom 95% of the corporation. Instead, they are provided a form of tenure that nearly guarantees them a lucrative bonus package, even if this package will cost more than 160,000 workers their jobs.
Iman Anabtawi, a professor of law at University of California Los Angeles (UCLA), states that the compensation packages for CEOs are not linked to performance; instead, he offers the tournament theory as a plausible reason for the performance-salary gap. Anabtawi explains tournament theory as a theory “…in which CEO pay is a prize awarded to the winner of a competition to get to the top of the corporate ladder—to illuminate the structure of executive pay” (Anabtawi, 2005, 1558). This theory elucidates why the struggling corporations continue to increase the pay of their executives in the wake of economic downturn and poor performance. Professor Anabtawi goes on to state, “In general, tournament theory implies a compensation structure for the hierarchy of labor within the firm. In contrast to optimal contracting, in which employees are rewarded at any given level of the corporate ladder in proportion to their absolute performance, the tournament model describes a reward system in which (1) compensation at each job level is set in advance— that is, it is not designed to reflect the performance of, for example, the CEO as CEO—and (2) there is a positive spread between each rung of the corporate ladder and the next highest one” (Anabtawi, 2005, 1558).
Analysis
This particular compensation strategy is counterintuitive to most of the social ideology. As students, we are taught that our effort will be rewarded with grades of “A” or “B” or our lack of effort will be met with grades of “D” or “F”. In sports, we are told that our practice will result in better performance and subsequently, winning. On most of our jobs, we are expected to meet certain standards. If we meet these standards, we are allowed to keep our jobs and possibly get a promotion. If we fail to meet these criteria, we can expect to lose our positions, if not lose our jobs. Why then is it okay for the highest paid individuals to be rewarded, in many instances, or not terminated for poor performance? The answer lies in the board of directors (BOD). There is very little corporate governance or regulation to insure that the CEO’s compensation package is in line with the remainder of their workforce. The average worker in company is not afforded any voice in the company; therefore, they are “takers” of the system.
Oppressed
We have discussed the CEO and his/her compensation package and provided reasons why they feel it is fair. We are now left with the second question of why the bottom 60th percentile stands for such an egregious system of inequality. Freire states that the oppressed have an internal affinity for the oppressor. He believes that the oppressed would like to become the oppressor because the oppressor has created a reality that the oppressed has mistaken for truth.
On the other hand, at a certain point in their existential experience the oppressed feel an irresistible attraction towards the oppressors and their way of life. Sharing this way of life becomes an overpowering aspiration. In their alienation, the oppressed want at any cost to resemble the oppressors, to imitate them, to follow them. This phenomenon is especially prevalent in the middle-class oppressed, who yearn to be equal to the "eminent" men and women of the upper class (Freire, 1970, 62).
Analysis
A recent example of this defense is Samuel “Joe the Plumber” Wurzelbacher. Mr. Wurzelbacher was very concerned about the tax increases levied upon the “rich”. The increase in taxes would go to help pay for health care, education, and other social programs that would help the average American. The increase would be assessed to any amount above $250,000. His concerns were valid; however, there was one problem, he does not make near $250,000 per year. In fact, the tax would go to help him more than it would hurt the people of whom the tax was intended. Karl Marx believed that there would be a revolution where the proletariat (the working class) would be pit against the bourgeoisie (the ruling class). The shortcoming in Marx’s assessment was the carrot that would be dangled in front of the proletariat; that desire to one day become a part of the bourgeoisie.
The ruling class has created a belief that being a part of the world is accomplished through material possessions. The poor are reminded that they are poor every day. Every time they turn on the television and observe something they cannot afford, or when they are forced to eat unhealthy food because healthy eating is too expensive. In concert with this reminder comes frustration and anger with the other poor people. Unfortunately, they see themselves in one another and identify weakness in their own reflection. As a result, they lash out at each other. These fits of rage are met with a schadenfreude because they have felt what it feels like to be the oppressor; a state of being that they long to possess.
Future Research
Future research is necessary to provide empirical evidence of the affects stronger regulation will have on corporate governance. The federal government, for instance, could give tax breaks and federal contracting preferences to companies that maintain a reasonable pay gap between their top executives and workers. Rep. Jan Schakowsky (D-Ill.), in her proposed Patriot Corporations Act (H.R. 1874), would extend these tax breaks and procurement bidding preferences only to those companies that compensate their executive at no more than 100 times the income of their lowest-paid workers (Anderson, Cavanagh, Collins, & Pizzigati, 2009).
The income gap has to be narrowed in order for our overall sustainability. Government intervention will be necessary because the oppressive class has never, historically, voluntarily given up their superior posture without a mandate from the oppressed group. Given that our government is a democracy, created to represent the majority of people, the government is a likely tool to insure that the oppressors release their oppressive tactics and essentially, “share the wealth”. This government intervention would have to include a provision that limits the corporate lobbyist from influencing our elected officials. This would require a proviso that would exclude elected officials from presiding over any committees that may be influenced by an elected official’s family employment. For instance, a Senator would be restricted from presiding over any energy committee if, he/she has an immediate relative working for one of the major companies. This will reduce some incentives for the elected official to act in his or her own self-interest.
Conclusion
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