"The market" shapes how executives are compensated, but the market is a collective and not an impersonal entity. That is, we are the market and we determine through our choices which companies are rewarded. All human decisions are morally culpable, so the claim that "justice" has no standing in the marketplace is wishful thinking from those who wish to free themselves from the constraints of conscience. And top American executives are still paid 15-20 times more than top executives in Japan and Europe, so we can afford to restrain our executive compensation and still retain premiere talent.
More precisely, the problem is in the character and the culture that such exorbitant compensation produces. Three questions especially concern me.
First, what is the effect of such compensation on the incentives that normally bind together the interests of the executive and his company? If an executive can make $50 million by insuring high-risk piles of paper this year, why should he fear much what happens to the company next year? When lavish pay and golden parachutes assure a life of perpetual indulgence, they shield the executive from the adverse long-term consequences of his or her decisions, and the temptation of instant extreme wealth is not effectively counterbalanced by a sufficiently weighty fear for the enduring health of the firm.
Second, compensation packages that encourage extreme risk-taking and entice with instant mountains of wealth affect the character of the executives. Angelo Mozilo earned hundreds of millions of dollars pushing Countrywide deeper and deeper into subprime mortgages, and in the last years he allegedly misled investors about the toxicity of the loans even as he cashed in $140 million in stock. When executives are so lavishly rewarded for successful risk-taking, how could they not grow arrogant and reckless? If we incentivize financial daredevils instead of wise stewards, then financial daredevils we will have.
Finally, why are Christians not leading the charge to establish sane compensation for executives? What does it say about us as a society that we have accepted a situation where executives can make thousands and fund managers can make ten of thousands of times more than teachers, soldiers, and firemen?
To be sure, there are no easy solutions. Government dictation of pay could well distort the market and depress economic growth. Business leaders themselves would be wise to develop solutions before the government imposes one -- and conservatives can either pretend there is no problem or else come the table to negotiate a solution that is mindful of the needs of businesses in global competition. As Warren Buffett has long argued, the incestuous relationship between CEOs and their compensation committees would be a good place to start.
Yet Christians should seize the opportunity to witness their faith. As D. Michael Lindsay reports, some evangelical executives have already shown a different way by choosing to live humbly and give the greater portion of their wealth away. Evangelical business leaders should begin a movement to form more reasonable compensation packages and reestablish a culture of wise business stewardship. Some could redirect a portion of their power toward their lowest-paid workers, or to retain those who otherwise would have lost their jobs. These would be examples of true servant leadership, and signs of the counter-cultural values of the cross.
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