There was an interesting little panel discussion on BNN this afternoon about collective bargaining in 2012. The most interesting part is Catherine Swift’s comment 
about CEO pay. Swift is the ubiquitous face of the business lobby group, the Canadian Federation of Independent Business. She is usually heard trumpeting the greatness of free market forces and chastising all forms of government (and union) intervention in the employment relationship. For my students, she would fit into the Neoclassical Perspective. So I almost choked on my latte when she said in today’s interview the following:
“Some CEO pay is out of control. I’m a free marketer, but at what point do you say it is too much?”
That’s a very good question, Catherine, one that the labour movement among others have been asking for some time.
But you can’t have it both ways. The notion of an executive being overpaid is nonsensical if you believe that free markets operate as our neoclassical economic friends want us to believe. An executive is worth whatever he (it’s virtually always a he) the corporation agrees to pay him; he is receiving the “market rate”, just like a worker who earns $5 per hour is “worth” $5 per hour. In the case of executive compensation, there is no nasty union ‘artificially’ raises the compensation through the exercise of coercive poers, and no silly legislation fixing that rate at a level other than the market rate. Executive compensation is unrestained by any forces other than market forces, and individual greed of course (which is a positive trait, after all. Gordon Gecko told us that). Therefore, to speak of “overcompensation” speaks of a need for regulatory reform of imperfect labour markets, which no sane believer in the free market would ever dare utter in public.
But wait. Even Richard Posner, one of the Godfathers of neoclassical law and economics concedes now that executive compensation doesn’t operate within the constraints of the ivy tower noeclassical economical model. According to Posner, the theoretical competitive forces that are supposed to ensure that executives are paid their worth are simply
not at play in the real world. So Catherine is right in saying that executive compensation is out of control, it is just that I doubt the business community is real fond of her saying on national television that market forces don’t work in setting compensation.
Then then she went even further, and suggested some business executives “should be in jail” for their behaviour in destroying the economy back in 2008! [at about the 8:50 minute point of the video]. O.M.G.! Our system of compensating executives allows greedy CEO’s to take home ‘out of control’ amounts of compensation? Business executives should be jailed? Of course, again she is absolutely correct (have you seen Inside Job?), but these just are not words you will often here from the spokespeople for the business community. You go, Cathy! Canada Labour Congress, offer this woman a job!
Watch the panel discussion here.
So, I assume now politicians can count on Swift and the CFIB to support calls for legislative reforms to legislate executive pay? Perhaps the CFIB will support the proposal to link executive pay to average employee wages in the form of mandatory maximum ratio? At least, the CFIB should support following the American lead, and require corporations to just report the ratio of CEO pay to average employee pay? Right? Hello…