Image Credit: <a href='http://shutterstock.com' target='_blank'>Shutterstock.com </a>
 

CEOs & Fair Wage to Workers: A Christian Perspective, Part I

Dan Price, the CEO of Gravity Payments, made recent headlines by slashing his own annual income from $1,000,000 to $70,000. In doing so, and in cutting from some of the company’s profits, Price has raised the minimum salary of his employees to $70,000.  Many have hailed this gesture as a form of “Christian capitalism”—though I haven’t read anything regarding Price’s faith. Others have criticized Price because his compensation policy doesn’t incentivize worker productivity and uses funds that could be better spent elsewhere. Rush Limbaugh went so far as to call Price’s policy as “unadulterated socialism.” However, Price’s action isn’t socialism because the government is not regulating anything here; this is Price’s company and he is performing an experiment in capitalism. Indeed, this is the way Price sees it. He believes that “this is a capitalist solution to a social problem”—a philosophical concept that many of us may be sympathetic toward.

All that being said, there are two issues at stake in this discussion. First, what is the worth of a CEO to a company? Second, how much should Christians pay their workers?

For a number of years now, people have become critical of the amount of pay that a CEO takes home. Indeed, such criticism may not be unwarranted as some research suggests that CEOs are making untraditional, astronomically disproportional pay compared to the rest of their employees. Additionally, we are living witnesses to the massive financial bailout the government gave to mortgage lenders. This government bailout (while many medium- or small-sized companies failed) was partially used to bankroll hundreds of millions in “bonuses” to bank executives. Mind you, $165 million of A.I.G’s $170 billion bailout is but a mere 0.097 percent of the money. Less than one percent may not seem like a lot, but to us common folk it still is.

In spite of the frustration many of us may have at the income of CEOs, how are we to determine what a CEO is worth to his or her company? Who is the arbiter of determining that value?

I am sympathetic toward the opinion that CEOs are making too much money. Yet at the same time I recognize that I am not in an epistemic position to have an informed view as to the worth that a CEO has to any given company. The decisions a CEO make can lead to the growth, stagnation, or destruction of an entire company, so I can understand why they would be incredibly valuable to others, such as investors, shareholders, or even employees. This is the idea that Milton Friedman advocated: that shareholders (or investors) are to determine the worth of a CEO to a company.

According to Friedman, a company very well may have certain objectives of which maximal financial profits is not one—that is uniquely up to the mission of the company. However, we should be circumspect to the notion of “social responsibility.” The only social responsibility that a business has, according to Friedman, is “to use it resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”

If Price and other CEOs believe they that they are designing a model to increase (long-term) profits for their companies, then all the best to them. If other CEOs want to take a pay-cut to invest that money into hiring more workers at a lower salary, that might be an even better idea given the unemployment rate. Or if CEOs want to keep the income where it is at, that may be their prerogative (conferred by the investors and shareholders).

Price is not the first CEO to present a model of economically sacrificial leadership. Haruka Nishimatsu, the CEO of Japan Airlines has been doing this for a long time. His reasons for doing so seem almost sage-like: “If management is distant, up in the clouds, people just wait for orders.” At the very least, I want to say that sacrificial leadership is admirable. We might categorize it as a supererogatory action, an action that goes above and beyond the call of duty.

Ultimately I think our concern is not with how much CEOs take home, but how CEOs spend their income. If a CEO takes home $30 million but uses $29 million to fund charitable organizations helping the poor, needy, or ill, then many of us wouldn’t be so repulsed by the income.

In my next post I will address the topic of Christians giving a fair wage to their employees.

  • Kurt, great piece. Thanks for writing. I appreciate that you label this “servant leadership.” As this blog is titled “A Christian Perspective,” do you have any particular Christian-y thoughts on the meaning behind this term? And while I love Nishimatsu’s sage wisdom, it seems what he’s describing is something incarnational—management in the flesh. Would you agree?

    I’d push back against your last paragraph, though. Frankly, once someone takes home a wage earned fairly, what she or he does with it, I care little about. I do think that there is some issue inherently in the disproportionate figures that CEOs take home. Here’s a thought experiment. Let’s say a CEO takes home $30 million, but generously signs a check for $29 million to some city-run food bank initiative when the Mayor invites him to a (albeit, modest) $200/plate Gala. The mayor celebrates this incredible act of selfless giving by naming the food bank after the CEO. What if, though, 30% of that CEO’s employees in his home town frequented the food bank because of their low wages?

    Wouldn’t it be more just (of better value? less morally repugnant?), in this case, for a CEO to ensure that all employees have a fair wage, than for the CEO to take home that money, then turn around and donate it?

    I appreciated the use of Friedman throughout this post. Though, do you have any particular Christian-y perspectives on what Friedman offers Capitalism at large? Why should a Christian accept Friedman’s take on the parameters for social responsibility in a corporation? Does a, say, Christian CEO have any further social responsibilities besides abstaining from fraud?

    • Kurt Jaros

      Hi Chase,

      Thanks for your comment.

      No particular reason for my use of “A Christian Perspective.” I recognize there
      are multiple perspectives out there, though I, naturally, think my position has
      better points than others.

      Nishimatsu: It depends upon what one views as being “incarnational.” Yes, being
      in the midst can be a good thing. But also consider how not being in the midst
      can be a good thing! It all depends upon the situation.

      We would certainly disagree about this: “once someone takes
      home a wage earned fairly, what she or he does with it, I care little about.”
      Jesus seems to teach a lot about how we should spend our money: don’t build
      storehouses, spend money making friends, etc.

      CEO Foodbank: Well what happens to the $29 million. It goes
      to purchase products and services which employee people (such as people at the
      foodbank, grocery store, farm, etc.). The money is put to use creating jobs
      just not at the CEO’s own company.

      Friedman: I think what Friedman offers capitalism is a defense of the
      free-market. Consumers are the drivers of the free-market so if some company is
      doing wrong or bad that company will go out of business. One example is that
      despite overwhelming success, many people are starting to reject McDonalds as a
      viable fast-food option. http://www.usatoday.com/story/money/business/2014/10/21/mcdonalds-fast-food-restaurants-earnings/17652697/

      Chipotle, on the other hand, known for it’s more “socially-responsible” business
      methods are succeeding. Thus, the consumers, not government regulators, are
      determining which businesses should success and fail.

      I also think Friedman offers Christians a defense of the free-market system
      which is responsible for the wealth of nations, leading even the poorest of
      poor into a better overall state. For example, the free-market led to the
      creation and mass production of refrigerators, A/Cs, cell phones, etc. all of
      which are now available to even the poorest of poor (even if such things are
      bought through government welfare).

      I haven’t done a ton of thinking on the matter but I think Christians should
      accept Friedman’s take because who else should decide the social responsibility
      of corporations? Jesus’s instructions seem to be for individuals to donate
      their money freely. Even if they pool together their resources I don’t think Jesus
      wants us to place various regulations on businesses to accomplish the goals.
      The reason why we applaud CEOs like Price is because he performs his action
      freely, not through government regulation. Utopia seems to be a place where
      people do not perform actions under coercion but out of the goodness of their own
      (transformed) heart.

      “Does a, say, Christian CEO have any further social responsibilities besides abstaining from fraud?”

      Sure! They have to ensure the success of his or her company. As Ronald Reagan
      once said, “I believe the best social program is a job.” So the preservation,
      perhaps even creation, of jobs is a social responsibility (in its own right);
      humans flourish when an economy is thriving, so we need to have successful businesses
      in order for that to happen.

Theme developed by TouchSize - Premium WordPress Themes and Websites