Further Reflections on Executive Compensation

A reader who comments on my article on executive compensation, “The Executive and the Cross,” refers to the extravagant amounts of money given also to entertainers and sports stars.  I’m glad this was added, since it was something I intended to mention but forgot.  If I should criticize John Thain for making $83M in a single year, should I condemn Tiger Woods for making a similar amount?

As explained in the article, it is essentially we who are the market.  At least in most cases, the amount of money a person is paid is a reflection of the value that we place upon that person’s products or services.  If we did not care about movies or golf, Jack Nicholson and Tiger Woods would not be rewarded so lavishly for how well each performs at what he does.  Similarly, if we did not care about getting the highest possible return on our investments, then we (through ‘the market’) would not give so much money to executives.  So, as with business executives, the “compensation” given to entertainers and sports stars does illustrate our misplaced priorities, and to that extent it constitutes a sort of judgment upon our society.  If we really valued good teachers as much as we claim to, then good teachers would be paid more–and, in areas where educated is highly valued, there are usually an abundance of private schools who pay much more to get teachers of top quality.

The reason why executive compensation is especially important is because of the effect that it has upon the economy as a whole and upon particular companies.  I have to agree with D. Michael Lindsay that “trust is the engine of the market,” and the rewarding of lavish compensation packages to executives is undermining the public’s trust in the American market.  Furthermore, as argued in the article, extravagant executive pay may actually harm the company the executive leads insofar as it complicates the executive’s character and incentives.

That said, I am a philosopher and not an economic.  I fully admit this.  I am not writing on these subjects because of any special expertise.  I am writing because I strongly believe that Christian executives can lead the way and present a real testimony here.  As Lindsay wrote in Faith in the Halls of Power, excessive compensation not only undermines trust but also “undermines [evangelicals’] ability to frame business as a moral activity, which is critical to expanding evangelical influence in the business sector.”

Where “executive compensation seems like an area where evangelical executives could distinguish themselves from their secular peers,” few do so.  Max De Pree, CEO of Herman Miller, would take no more than a 20:1 ratio on his (or any executive’s) salary over the average at the company.  De Pree called it a decision that “could and should be informed by my faith.”  Yet examples such as this are too rare.  As Lindsay said in an interview:

I do take these evangelical CEOs to task [over executive compensation.] If they are really interested in working for the common good, they ought to figure out ways where they can be a little less self serving. That’s really strong language, I realize, but it seems to me this is one area where they can really stand apart from their secular peers and, on the whole, they don’t. I did come across evangelicals who presented attractive examples of trying to live out their faith [amidst great wealth,] but these were notable for being rare.

There are limits to what can be said in any single article, and I’d like to continue to address this issue, turning in particular to practical solutions.  If anyone has any thoughts, please let me know.

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~ by tddalrymple on July 23, 2009.

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