How to fix capitalism: nine expert solutions for America's broken system
All workers need to share in their company’s success
Steven Pearlstein
Any defense of the extravagant compensation for corporate executives inevitably boils down to two points: first, it’s fair because it’s tied directly to increased profits and, second, because it provides necessary incentive for these highly talented people to share their excellence and make the often tough decisions necessary to keep their companies competitive.
What’s curious, however, is how infrequently the same logic is used when talking about the pay of frontline employees who actually produce the goods and services sold by their companies.
In the age of “maximized shareholder value”, the corporate view – widely embraced if rarely given voice in public – is that a paycheck at prevailing market wages is all the incentive workers need and all the compensation they deserve. No surprise then that after decades of soaring profits and stagnant wages, American business faces declining employee engagement, loyalty and productivity growth and declining workforce participation.
What’s needed is a new business norm that says all workers should share in the success of their companies, with government playing a supporting role, nudging things in the right direction.
The Securities and Exchange Commission could require public companies in their annual report to calculate how much of their profits are shared with top executives and with frontline workers. And the tax code should reinforce this norm by denying favorable tax treatment to executive compensation and shareholder buybacks unless such a company-wide profit sharing mechanism is in place. Partnerships, small businesses and limited liability corporations that refuse to share profits could be required to forfeit the accounting privilege of passing through their profits to their owners without first paying the corporate tax.
Socialism, you say? Hardly. Giving workers a return on their investment of hard work, talent and loyalty, along with their willingness to risk their economic security on an enterprise, sounds to me like the very essence of capitalism. Granted, it is not the ruthless, selfish capitalism preached by today’s market fundamentalists.
Rather, it is the fair, cooperative capitalism envisioned by Adam Smith, who understood that our own wealth and happiness depends on the wealth and happiness of others.
Steven Pearlstein is a business and economics columnist for the Washington Post and the Robinson professor of public
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