kicking them when we’re down

There has been a lot of hubbub as of late concerning the pay of banking executives as the government tries to alleviate a recession.  “Why should they be rewarded for failure?” and “This is taxpayer money, it should be helping the taxpayers as a whole, not those rich assholes!” seem to be the new slogans of the people and the papers.  I’m more than a little suspicious that most of this fuss is just for show, since the scope of our financial crisis is enormous and difficult to fully comprehend, probably even for some economists and government officials, let alone for Joe the Plumber and the rest of the country.  Sure, we know a good deal about what has happened, may happen, and why, but we certainly don’t have enough knowledge to predict what will happen as a result of any particular dollar amount or course of action.  Quarrels over bailouts are evidence of this mystery factor.  With so many unknowns, I’m guessing most people are more apprehensive and frustrated than genuinely irate about the new executive pay rate, which may or may not be significant to our actual recovery or demise.

But never mind that, and let us focus on something understood by everyone (at least everyone who is or has been part of the workforce).  Whether we think executives typically earn fair pay or far too much, there is some sort of vague notion that they earn more than the average because they are either smarter or more strategic or better educated or harder working or better at knowing whom to blow than the average person.  To a greater or lesser extent, we agree that higher pay is somehow connected with greater merit.  Perhaps the scale is off, but the guy who cooks your burger plainly deserves less of your money than the guy who keeps your money safe.  Common sense also says that when that guy loses your investments instead he has become far less meritorious, and thus deserves less pay.  This is clear whatever the exact figures may be.  Work better, make more money.  Fail, take a pay cut.  Right?

Wrong?  In what other sector does it work like this?  While the first part of this rule probably holds in a general way, the second pretty much never does.  Think about it.  In most professions, unless you manage to get fired or laid off or something, pay cuts do not follow failure.  Tenured teachers can’t be fired in most instances, and I’m sure that if they start to slack they suffer no financial consequences.  Even without tenure, declining effort won’t result in being paid less proportional to performance.  Anyone on hourly wages who starts to do poor work might have their pay rate frozen, but seldom cut.  It just doesn’t happen.  The only exceptions might be those who get tips and those whose future customers choose them on the basis of previous work, but tipping is standard even for mediocre service and a few little fails probably don’t lead to much loss in the long run.

While it’s easy to cry out that banking execs and the like should be held accountable for their actions and be paid less after they perform badly, this is not a basic moral policy that we as a country would enjoy seeing carried out large-scale.  The average person does not want to be docked pay when they take a long lunch break or knocked back to minimum wage if they’re repeatedly caught slacking.  Even highly motivated and energetic people would dislike the prospect of having constant pressure to do brilliant work just to retain the pay rate they achieved in a spurt of youthful enthusiasm or as the new employee.  Why are we unable to empathize with executives?  Do they not have the same rights to occasional unpunished incompetence that the rest of us enjoy so well?  This isn’t China!  A meritocracy is a terrific ideal, but who are we to demand that it commence with these poor rich people?

As someone with a whopping one economics course under my belt, I propose that in this time of crisis we come together as a nation.  The New Deal included a bank holiday: those lucky bastards get Sundays off, which can be quite an inconvenience to the rest of us.  From now on, only those in the financial industry should have to work on Wednesdays.  This is our part of the deal.  Now that we’ve evened the playing field, banking execs and the rest of us will all accept pay according to how much we actually earn through work.

For everyone who ends up a bit poorer for this plan, take comfort in the fact that Moral Hazard is free to enjoy and that Wednesdays will now be freed up for reading our nonsense.


5 Responses to kicking them when we’re down

  1. lgrawr says:

    As an aside, a big reason why (American) companies much sooner fire employees rather than cut pay in duress is that there is a strong implicit norm or sense of entitlement among workers that equate a paycut to a justification of less efficient work. It’s been demonstrated in the past and has been a seldom repeated mistake for management.

  2. Dan says:

    I think most people would agree with you here, but still would like to see executive salaries cut because they should not have been so high to begin with. Furthermore, it’s my understanding that these executives were (and still are) often paid salaries and bonuses not out of profits, but out of the money with which they were entrusted.

  3. decapitatedchicken says:

    screw you dan, we deserve everything we get.

  4. Dan says:

    You’re an executive now?

  5. Dave says:

    I think the whole blog misses the point. I may be wrong, but I thought the reasons for exeutive paycuts were:

    They were paid gratuitous amounts of money while the business itself was failing. They were asking for taxpayer dollars to save the business while they were receiving inordinate amounts of money personally rather than putting that money into the business.

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