Free Market and the Salary
Apparently an alderman from Chicago feels that the hourly wage of the CEO of a major retail corporation shouldn’t be more per hour than the annual wage of an employee who works at the bottom rung of the organizational ladder.
First the alderman works at the pleasure of the voters in his district and his opinions of the salaries out in the private sector shouldn’t be any of his concern unless he is using the information to reduce the government payroll he is a part of.
The salary and other benefits of the CEO of any corporation are determined by the Board of Directors of the corporation. The CEO has an important and difficult job. None of us should begrudge them whatever they can get. The corporation has to make a profit for the stockholder. If possible the profits should provide quarterly dividends for those stockholders. People invest in the corporation to make money. The CEO is the leader of the organization and makes the profits happen through the resources available to him within the structure of the corporation.
The employees at the bottom rung of the organization make the salary that the job is worth. It may be minimum wage or more than minimum wage, it depends on what skills they need. If you can get enough qualified people to do the job at minimum wage then you don’t need to pay more. If that doesn’t get enough qualified employees then you have to pay more. Another consideration that the free market has an impact on is turn over.
When you start to lose some employees because a competitor in town is paying them more for that job, then you have to review your pay scale and become competitive. The free market sets the level. Now if you feel generous and choose to pay more than the free market sets for that position, you are doing a disservice to the stockholders. Your expenses are too high and the profits are down. They are choices that management has to make. The deliberate decision to pay higher than the competition to maintain stability and provide security to the work force is a valid decision to make. There are positive results to that decision, but that is a decision that management has to make. Profits are the goal of most corporations. The stockholders are entitled to it and they demand it.
The free market does a great job of determining what a job is worth and how much a job is worth. Artificially determining the salaries will not maximize profits and will artificially inflate expenses and will not make the corporation as competitive as it should be. Paying more than job is worth to satisfy some social guilt feelings prevents the corporation from being as efficient and competitive as it should be. Then the price of the stock goes down and dividends go down or disappear. Those are bad business moves.
The lower in the organization a job is; the more candidates and the fewer skills and experience the position requires.
The higher the position the more skills and experience is required. There is only 1 CEO and the skills and experience required are plentiful. There are very few exceptional candidates for these positions.
The free market is less of a factor in this salary than in other salaries, but then there are so few of these positions available.
An alderman from Chicago shouldn’t stick his local political nose into this arrangement until he has a better basic understanding of economics. Those in the lower paying jobs are not forced to stay there. If they feel that the corporation isn’t paying them what they’re worth, then the free market is there for them too. Individual employees who have marketable skills and offer more than their current employer is paying them for can go out and find a better paying job. Make use of your marketable skills and get yourself a better job offer. If on the other hand you don’t have any skills that will get you a better paying job, then you have to accept the one you have. A poor paying job beats no job.
We all have the opportunity to acquire skills and gain experience in life. It is an individual responsibility to make yourself marketable and to maximize the type of job you are qualified for. If you are angry at your employer for paying you the small salary they are paying you blame yourself for not being more marketable.
If you feel jealous that the CEO makes more in an hour than you make in a year, try to learn from him or her and see what kind of an education and experience they have and fight for the opportunity for your children to get that and for them to do better than you did in life.
Don’t cry and complain, don’t try to demonize the CEO, and for God’s sake don’t listen to a Chicago alderman. Their ability to understand basic economics is marginal at best.