From: Robert J. Bradbury (bradbury@aeiveos.com)
Date: Sat Sep 01 2001 - 16:52:16 MDT
I haven't read this thread completely yet and will probably
say something that has already been said, so apologies in
advance.
Charlie Stross said:
> The root of this social problem is that the marginal value
> of money declines as you acquire more.
This is a good observation. Certainly there are many a year
when the Jacks/Bills/Larrys of the world make enough that
they never have to work again a day in their lives.
(Though they are already wealthy enough that they don't
have to work another day in their lives).
Given this situation, you are in a very uncommon area
of the risk-benefit tradeoff. You can replace a dozen
or a thousand corporate employees and depending on the
size of the company not change its market valuation at all.
On the other hand if you replace the CEO you will raise
all kinds of confidence issues for investors. Does the
replacement know the business? Are they as astute or
aggressive as the individual being replaced? etc. etc.
So, as one becomes wealthier the likelyhood of the
executive saying "take this job and shove it" increases.
So compensation committees have to pay increasingly
larger amounts to preserve the existing value the
investors have because they run a high risk of the
executive leaving causing the company to be perceived
as an "uncertain" risk, causing significant losses
in valuation.
Its a form of extortion in a way. Executive says -
"you will lose this much valuation if I leave".
Compensation committee says "ok, we will pay you 1/10th
of that". Only if the performance of the company
is really poor does the compensation committee get
to pull the strings a little. Then an executive
change can look like a good thing.
> By giving the workers more money to spend, in the broader picture,
> bosses can expand the overall size of the market (and ultimately reap
> bigger long term rewards).
I'd say this is incorrect. Any economist will tell you
that present-day consumption borrows from future growth
rates. If Jack Welch earns $122 million where does it go?
After 30-40% to the government, most of it probably goes
into risk capital. I.e. into those funds providing the
money Charlie would like to get from the VCs. Risky
investments, but big payoffs. Jack gets richer and if
Charlie's strategy works out he gets to join the Jack's
ranks. On the other hand if you instead redirect the
money to the worker, who then proceeds to use it to buy
"Pet Rocks", there is relatively little job creation
(providing jobs for people who would otherwise not
have them), or making the economy more productive
(by fostering inventions that increase efficiency).
I cannot find merit in this thread (so far) because it fails to
account for the multiplier effect(s) of the allocation of
income by an "average" person compared with the multiplier
effect(s) of the allocation of income by a "wealthy" person.
Now, if someone were to make the case that a majority of
wealthy (or highly compensated) executives spend a majority
of their wealth in non-productive ways -- then I would have to
sit back and rethink my position.
Robert
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