Pay differentials

I think it's largely undisputed that pay differentials between chief executives and blue collar workers have been trending toward larger and larger multiples over the past decade or so. But I'm far more interested in the why than the how much. I can hypothesize lots of reasons why: some commonly-held but sorta dumb, such as "greedy" executives writing their own pay packages (we're all greedy, and executives likely haven't found a new secret way to get greedier); some plausible but unlikely, such as boards of directors' recognizing a strong correlation between executive pay and subsequent corporate performance; and some where I have no data or instinct either way, such as a relative shortage of qualified CEO candidates. So if anyone's got something more concrete than hypotheses, I'm all ears.

In the meantime, the question of what effects will occur at a particular corporation -- and more broadly -- is a subject that also deserves greater academic attention. A shareholder proposal and management response in GE's latest proxy statement neatly lays out the gist of the "bigger differentials are bad" and "bigger differentials are necessary" arguments, nicely highlighting the paucity of rigorous research. In the end, I support any company's right to create whatever pay differentials they darn well choose, whatever the consequences that follow, but their being able to do so as an informed choice would be better.

Columbus Guy says: Oh, geez, I was told there would be no math.