January 20, 2006,
On the matter of reform in publicizing executive salaries, a few observations:
The way it is being handled now is marginally inexcusable, and unquestionably disgraceful. A case can be made, using prime libertarian doctrine, that what an executive is paid is of concern to only three parties: the executive himself, the stockholders, and the employees. What stands in the way of explanations that fundamentalist is that there are means of paying these huge salaries which are substantially this side of full disclosure.
Begin with the plain fact that official communications from large companies are quite simply unreadable. Add to this that there are means of compensating executives which avail themselves of loopholes. Loopholes are often welcome. They are a means of circumventing those strangulations by which government seeks to put its big thumb in the way of enterprise. To file our corporate literature in such a way as to avoid suspicion of prejudice against women, minorities, aliens, cripples, pregnant women, or imported goods is a challenge even to resourceful corporate communications officers.
Then there is the matter of tax avoidance. The executive with this in mind gleefully disguises his compensation in ingenious ways, which have the effect of exposing to high taxation not himself, but the company that hires him until the blessed day when he retires and scoops up his deferred compensation, plus his options of one kind or another. You donít really have the components of libertarian exchange necessary to expose what he is earning so that a stockholder can weigh what is being paid for executive services. Action by the SEC designed to reveal what actually is going on is welcome.
There is a healthy reluctance to concede that Mr. Jones is really worth $5 million per year in compensation, which is what he is getting, viewed in a truly strong light. Itís another matteróand this society needs to get used to itówhen an individual is earning something ordained by the public itself in recognition of his uniqueness. If it is a baseball player who enchants a great public, or a chanteuse whose records sell by the millions, or an author who writes Gone With the Wind, the public should acknowledge that it has only itself to blame for egregiously high returns. But when it is the vice president of a glass manufacturer, a salary blatantly inordinate gives rise to suspicions of dissimulations exercised, advantages taken, corporate boards compliant. These, then, have the effect of discrediting the whole capitalist apparatus, and everyone should feel the need to avoid that. A lot of what is being talked about is not illegal, but much that isnít illegal can be disgraceful, and a free society has a legitimate stake in trying to do something about that.
What needs to be acknowledged, when on a reformist tear, is that industrious and talented men and women are constantly and understandably concerned with that direful weapon available to society, which is confiscatory taxation. There are people alive, though they are getting old, who can remember when you ran into a taxation rate of 91 percent. And this, ladies and gentlemen, was so under a Republican administration. Dwight Eisenhower was president when that tax rate was on the books, and the public was rescued from it by John Kennedy, in the sixties. Tax rates that high are excursions in class warfare. The distortions they bring on damage society and fuel defiant behavior, encouraging everything from emigrations to the Cayman Islands, to active distortions of reality through brummagem corporate filings.
It is both just and sensible, when reforming what we deem hypocritical and disgraceful, to take tax rates into consideration. That factor is supremely relevant in the matter of death taxes. People will reorganize their lives, when approaching the end of them, in order to avoid death taxes that right now rise nearly to 50 percent. True reforms of the kind now being contemplated must take into account what it is that prompts behavior we are concerned with, which is huge taxation. A New Yorker moderately successful in his professional life will very soon be paying more than 50 percent of his earnings in local, state, and federal taxes.
When that happens, a reasonable part of human energy will go into devising arrangements of the kind we are attempting to discourage. The prospect of handing over reform to the John Birch division of the Democratic party, which sees a capitalist scavenger under every bed, will guarantee that nothing truly useful will be accomplished.