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by Derek Loosvelt | July 12, 2010


This is interesting, if not very surprising: A new study by professors at Harvard, Rice and the University of Utah found a direct correlation between CEO compensation and CEO "meanness." That is, the higher the chief executive salary, the more of a not nice person he or she becomes. In the words of the study's authors, "We claim that higher income inequality between executives and ordinary workers results in executives perceiving themselves as being all-powerful and this perception of power leads them to maltreat rank and file workers."

Makes sense to me. (God's work, anyone?)

In addition to providing data to back up their claim that execs get nastier and their heads inflate to the size of a Mardis Gras papier-mache mask when they make more money, the authors offer some solutions (namely to reduce CEO pay) and, in doing so, they point out that many modern business and executive compensation luminaries, including Plato, Aristotle and J.P. Morgan, believed that executive comp should be a capped at a certain multiple of the rank-and-file wage.

"Plato is known," the authors write, "to have remarked that the highest paid worker in an economy ought not to make more than five times the pay earned by the lowest paid worker. Aristotle thought likewise and cautioned that inequality, if not reigned in, will cause lower members of the economy to revolt ... Taking his cue from Plato, J.P. Morgan declared that top executives' compensation should be capped at twenty times the wage of an average worker."

However, the authors concede that a pay cap in this day in age (when the rule and not the exception on the Street is, "If at first you don't receive the seven-figure guaranteed bonus you believe you deserve, then try, try another firm") will likely never work. Which is why they pose something else: tax reform.

Specifically, the authors believe that tax loopholes (such as the one that requires private equity principals and hedge fund managers to only pay a 15 percent capital gains tax rate on their income as opposed to the normal 35 percent) should be closed. Another idea posed in the white paper is to require that executives hand over a portion of their compensation to charity.

In other words, in addition to supporting the rights of the rank and file, the authors don't sit on the right side of the aisle.


Filed Under: Finance