Wednesday, September 24, 2014

CEO/worker Pay: Perceptual Shortcomings

According to one study of people around the world, people of different cultures, incomes, religions, and other differences show “a universal desire for smaller gaps in pay between the rich and poor” than was the actual case at the time of the survey in 2014.[1] Interestingly, the respondents didn’t have a clue how much of a gap actually existed in their respective economies. The difficulty in estimation means that the public discourse on economic inequality has been rife with erroneous assumptions. Where the error lies in the direction of minimizing the gap, we can postulate that public policy allows for greater economic inequality than would otherwise be the case.

The United States, for example, surged past Peter Drucker’s wall of 20 to 1 (CEO compensation to average worker pay), hitting 40 to 1 in 1994 and then 400 to 1 in 2005. Why would America’s silent majority put up with such economic inequality? The short answer might lie with the power of corporations in using media corporations to lull television viewers into supposing that the difference in compensation is not very significant—significance involving not only perception, but judgment as well. That is to say, whether the gap is perceived to be significant is a value judgment that can be subtly manipulated.

In spite of an actual gap of 350 to 1 (CEO compensation to unskilled worker pay) in 2014, the Americans surveyed estimated the ratio to be 30 to 1.[2] Such a perceptual judgment could have been influenced by the lack of attention on the topic in the media. The ideologicalization of American broadcast journalism—the blurring of the lines between reporting and advocating—points to just how much estimates of significance can be subject to external influence.

Considering the relatively wide actual gap being allowed to exist in the American States as of 2014, what would the public policy have looked like had the perceptions of the American public been adjusted up to 350 to 1? Would the decentralized individual voters forming majoritarian blocks demanding limits put enough pressure on their elected representatives to mitigate the power of wealth in the halls of legislatures as elections loom?  

[1] Gretchen Gavett, “CEOs Get Paid Too Much, According to Pretty Much Everyone in the World,” The Huffington Post, September 24, 2014.
[2] Ibid.