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.