In Defence Of The Free Market

I made a comment on CEO pay being just fine.  I had a thoughtful individual make some points (bold), with my responses below:

It does not stand to reason that we should see justice in the distribution of wealth as it stands. (re: CEO pay @ 189 times higher than average worker pay).

I disagree with the idea that someone is entitled to earn wages of such magnitude based solely on their place in the hierarchy of a complex system such as a corporation.

I disagree with attributing a necessary connection between 'justice' and a 'gap' (in pay). For example, say Susan takes the position, "gravity lacks justice".  Lenny asks, "that's odd, why Susan?"  Susan explains, "sure, gravity allows some to juggle enabling balls to fall, crowds to cheer and people's hearts to be warmed, but I know a group of people who crashed in an airplane, and if gravity was not so cruel, they would have had a soft landing…therefore gravity lacks justice."  My point is simple. We cannot necessarily look at a gap (exorbitant pay vs. low pay or cheer's vs. cries), target the culprit (gravity, free market) and claim an injustice.  In some cases we could, but not necessarily.  Therefore, let's look at the 'culprit' behind these exorbitant gaps of pay…the free market.  Like gravity, there are certain 'laws' governing the free market, chiefly: private individuals/corporations trade goods and services at prices set though supply and demand.  The means of production and distribution are privately held.  I would argue the free market and gravity are both 'good'.  If Joe pushes Jennifer off the cliff because Jennifer cheers for the Montreal Canadians, we don't look to 'gravity' as the culprit.  We don't look to pass laws to prevent cliffs from existing.  Gravity was the mechanism behind poor Jennifer's fall, but we both know who is responsible: Joe.  The free market provides choice within the framework of legal protection of individual rights and freedoms, and private production of goods and services.  It is not the culprit.  People being idiots is the culprit.  And idiot people exist regardless of the 'system' they are under.  I understand people can choose to use the free market for evil…and they do.  However, using something for evil, does not make it evil..that is a simple logical fallacy.  Ted bashing his wife's face with roses make his actions evil, not the roses.  People's choice to operate without integrity under a free market makes them lack integrity, not 'the system' inherently lacking integrity. 

I would submit top CEO pay being so high is not any more unethical (pending they did not break any laws) then average pay. 

Here are the similarities between top CEO pay, and average worker pay

1. Both CEO pay and average worker pay was based on an agreement between employer and employee.

2. Both CEO and Worker has a job description outlining their responsibility for compensation.

3. Both CEO and Worker 'do well' at their job

4. Quality of performance determines pay within a free market for high, low income earners.  If this rule is violated, bankruptcy typically follows (endless examples).

5. Bad choices for positions exist with CEO's and employees.  The free market penalizes companies to the degree and influence of the bad performance of people hired.

6. Pay increase comes from re-negotiating wages of both top CEO's and lower income earners.

7. If the 'top CEO' does not like his (chiefly men on the list) re-negotiated pay, he can choose to leave.  If a lower income employee does not like their pay, they can choose to leave.  There is no legal law forcing either a top CEO, or a lower wage earner to stay and work at a place.  Supply and Demand works within the free market to 'pay people what they are worth'.

The common denominator is private companies agreeing to compensate an individual based on a mutual agreement. 

What gives a company the right to pay you $32.50 this year, instead of $29.75 from last year?  The free market allowing personal exchange of time for money based on supply and demand within the free market.  Cool.  What gives a person the right to earn $32 500 000 this year from $29 750 000 from last year?  The free market allowing personal exchange of time for money based on supply and demand within the free market.  Cool. 

It's the same 'justice' (if you want to use that word), mechanism that allows somebody to get a raise, pay decrease or worst case terminated.

So, nobody is 'entitled', contrary to your comment above.  It is based on an agreement between employer and employee.  People at all wage levels can be hired on 'entitlement'…and I have found hard and fast that customers have little 'mercy' for poor performance based on entitlement…so companies that hire on entitlement can and should be punished by a free market unwilling to pay for that 'entitlement' service.  It is not 'solely based' on their hierarchy within the company.  If a zombie were to have 'made his way up' to CEO (to the shocking surprise of every person watching), does the board keep him there after they learn he is a certified zombie? Do they say, "well, he is now our CEO and is therefore entitled to earn wages of huge proportions."?  NO!  They say, "he is a zombie, failing to do his job, he's fired.  The company is out for profit, so a zombie who fails also violates our need for profit." It is a contradicting statement to say that a corporation is out for profit (said below) and pays solely based on place in hierarchy. If the sole reason is 'place in company', the performance for profit is by definition not a reason.  If performance violates profits, do we still keep the CEO and violate our 'rule for profit'?  If yes, we are not just 'out for profit'.  If no, then the sole reason for hiring/paying CEO is not solely place in company…can't have it both ways.

Top CEO pay is structurally the same as average pay.  The free market chooses based on an agreement between owner and employee governed by supply and demand.  It is no more 'wrong or unjust' for Frank to make millions as it is for you to make thousands.  It is the same dynamic at work.  If we decry, 'unfair advantage', 'favoritism', 'sexism' or any host of injustices, share them and someone will likely be able to articulate how they fail to constitute a defeater to a free market being a basic good thing.

Therefore, as 'just' as it is for us to agree to $30k/year based on supply/demand so to is it as 'just' for Debbie to earn $30 million based on supply and demand. 

You would call this (incredible pay) an achievement or success, but what gives a man the right to control so many others?

What do we mean by 'control'?  Do we mean lead by directing others to perform to best serve customer? If so, people choose to accept direction when they take on a job description for agreed upon pay.  An individual using their free will to make a choice to allow an employer to direct them 'gives' that employer the right to direct them, and this is not bad.  It's based on a mutual agreement.  Mommy is grocery shopping and asks a stranger, "Sir, can you open the door for me?  I got my hands full." The stranger uses his free will to say, 'sure', then obeys the request.  Two parties exercising free will to mutually choose to offer/exchange time and talents is good, not bad.  Nobody is 'exploited' because there is mutual fee will coming into agreement.   

Power over countless people's lives and over countless resources (nationally or abroad), and all within the legal framework of our "free market". Is this power morally, ethically, socially justified?

Power is limited to job description and mutual agreement.  Resources is based on private ownership.  Legal framework of free market and protection of rights and freedoms is our law.  Morally, ethically justified? I would argue yes. And this would be based on a basic worldview (another post).

The bottom line is that the CEO's have no room for conscience when decisions need to be made. The love of fellow men is not included in the equation. Business management at that level is about profit, survival, stockholders' interests, the machine begins to look like what it is. It has no love.

They do have room for conscience.  Acting ethically and valuing people can easily be done while making profit. I argue, the best way to make a long term profit.  However, the company is about trading goods and services, not love. That is correct.  Gravity is about pulling us towards the earth…not about love either.  I think there is a God behind gravity who is love (i.e God who put gravity in place for our benefit).  Similarly, God gave us a platform to create, grow, develop and learn, within the context of free will and protection of private property/personal rights/freedoms.  The free market is a good expression of our ability to exercise the said mentioned freedoms (how socialism fails to do this, another post).  When the natural result is profit, you are right, stockholders get it (that is, what is not reinvested or bonused out…they also get the losses).  Now the question becomes, personally, what do they do with their wealth?  Are they going to pull a Bill Gates and give billions away, or horde and keep only for themselves? What a tragedy if the latter.  It's not the free markets job to love. That would be people's job. My objective as a CEO is to serve customers and get results.  I do this within the context of helping people and (trying my best) to value people.  I try to love people by valuing them and enabling them to release the gifts and abilities inside of them.  A benefit of releasing these gifts is often a satisfied customer and increased compensation to those advancing.  To me it is simple logic, do people grow, get smarter, take on more responsibility  and make the company more money when they are valued, or devalued?  I say valued. Let the free market be free. If anyone wants to work at a company where the focus is on valuing people and making a profit there are some 'free market' options:

1. be thankful you work at such a place

2. be the change at the place of work you want to see in others

3. leave and find a company that values people and makes a profit

4. start your own company that focuses on valuing others while making a profit

Don't Roll Up the VIN, To Win

With the recent juxtaposition of top CEO pay to average worker pay in Canada, I think it's only fitting to contrast something people can take immediate action and get satisfying results.

Tim Hortons in 3 quarters this year has made $280 million in profits.  Congratulations to their shareholders.
Did you notice the "do not litter" request made by Tim Horton's on each coffee cup?

As I was getting my coffee this morning, I noticed this:

Not uncommon.  Go to any Tim Hortons, and take a look.  People accidentally drop cigarette butts where they order food and Tim Hortons continually does not clean them up.

Making 280 million in 3 quarters, asking us not to litter, then demonstrating the seriousness of their request by housing their property like pigs?  Does this piggy attitude extend to how they handle our food?  If habits are a discipline based on a mindset, then what mindset enables Tim Horton's to 'care' about our food, when they do not 'care' about their property?  This is something people should be outraged by. 

How can a company make 280 million in 3 quarters and not afford to be consistent with a request they make to us in cleaning up their own litter?  Option 1, remove "please do not litter" from all cups.  Option 2, clean up mess.  Whatever choice you make, be consistent.

What if every person said, "I'm not buying a coffee from Tim's until you practise what you preach"? Bet your bottom dollar they would have the place spotless in 24 hours.  Do you mind the disgusting garbage at Tim's?  Do you mind them telling us (on a coffee cup we pay for) not to litter while tolerating it on their very property?  We should mind.  They are asking us to play by a different set of rules (be disciplined and steward property well) that they themselves continually ignore….after all, it cost money to pay for someone to clean.

I hereby make Jan. 20th "Clean up you litter, then I'll buy a coffee" day at every Tim Hortons.  If Canada kept the stores empty for 1 day, we would be driving into a clean Tim Hortons.  The choice is ours.

We Got It Good...Perhaps Too Good

Here are a few replacements for the absurd headline:

Study finds top Canadian CEOs leaving the rest of us behind financially

1. Study finds top Canadian CEO's created tens of thousands of jobs, increasing the standard of living for many

2. Free market to the rescue: High CEO pay, quality employment in focus

3. Study finds mean Canadian income of $44 000/year leaves billions of poor people behind financially

Please Replace:

The average Canadian worker makes just over $44,000 a year, according to a new study from the Canadian Centre for Policy Alternatives. The top 100 highest paid CEOs, whose companies are listed on the S&P/TSX composite index, made an average of $8.38 million in 2010. That's a full 189 times higher than the $44,366 average salary for Canadians working full time in 2010, according to the report.

With:

The average Canadian worker makes a whopping $44, 000 a year, according to a new study from the Canadian Centre for Policy Alternatives. The top 100 highest paid CEOs (who's leadership and vision made many of these jobs possible) made an inspiring 8.38 million in 2010. Congratulations on their successes!  The CEO pay is indeed 189 times higher than the $44, 366 average salary for Canadians working in 2010, however Canadians average salary is a shocking 60 times higher than the average worker in Haiti and similar proportions exist for many places in the world.  The Canadian Centre for Policy Alternatives comments, "This speaks volumes about how much we have to be thankful for."

Couple of comments:

1. The notion that one's honest success is the reason for another failure is wrong and is hurtful to the cause of many fighting to advance.  CEO's doing well ought to be leaders serving.  If a leader is serving, she is serving and propping others up to better do their job and advance.  This should create a result for the customer that leaves them satisfied and profit is the reward for that job done well. Compensation for results is good.  It is based on the agreement of employer to employee based on performance.  The same mechanism that allows one to make 44 000 and a CEO 8 million is one and the same: a free market paying for results.  We need more leaders leading, because this will allow for more people being served and advancing, which by definition...advances others...opposite to the 'leaves them behind' gibberish.  CEO's typically do a good thing.  The market rewards them for their results.  The market rewards me for my results, and you for your results.  If we don't like our results, then we need to change them.  Give the market what it wants and you will be rewarded. Be thankful that the same 'awesomeness' that enables the 8 million per year CEO is the same 'awesomeness' that enables one to make the $44 000/year: You can do it too!  Getting results that yield higer returns within that framework of 'awesomeness' should not come with negative overtones (save and except dishonest gain) and comments.  Congratulations to the leaders of our country. Thank you Canada for our ability to earn, develop, advance and grow.  I have what many CEO's have: a chance and opportunity to learn, develop advance and grow.  Regardless of how things turn out, I remain thankful for what really matters my breath and ability to love.

Young People Choose Socialism Over Capitalism

The "I can't get what you have, so give me what I did not earn" generation speaks:

A new poll from the Pew Research Center covering how people feel about various political terms shows that while little has changed over the past year and a half, many people may still be surprised to see how Americans feel about terms like "capitalism" and "socialism." Perhaps the most surprising finding is that for the first time, young people are choosing socialism over capitalism. More here: