I’ve been reading Nils Timo’s “The Social Scientist as Change Agent: Elliott Jaques and the Individualist Imperative”. Timo describes how Elliott Jaques came out against collective bargaining in Free Enterprise, Fair Employment (1982), but as a previous associate of the Teamsters (I’ve also been associated with the United Steel Workers), I’d like to demonstrate how collective bargaining officials within unions can use Jaques’s theories, especially that of Felt-Fair Pay, to bargain for entirely higher wages.
In Felt-Fair Pay, the pay of the people in various strata is determined by a multiplier of the base pay of either a Stratum I line worker or a Stratum II first line manager. I think that Jaques, in a way representing his original studies, used this bottom up method because it made sense for him to do it: there were more people at the bottom and their pay being fair was the issue. But one does not need to argue from the bottom up.
I propose that arguing from the top down makes more sense. The board can determine what an appropriate Total Compensation (TC) for the CEO/Chairman/President is/are. We can then take that and reverse-multipy: multiply the CEO’s pay times the percentage of it that the people in various Strata should earn.
Let’s take a real-life example, American Express’s CEO and President, Ken Chenault. According to the AFL-CIO’s Executive Paywatch Database (admittedly a biased source, but the number seems accurate compared to what I’ve read before), “Kenneth I. Chenault raked in $17,068,837 in total compensation including stock option grants from American Express.” We will ignore the $3,430,704 in stock option exercises that he cashed out from previous years’ stock option grants, as we will ignore the extra $39,955,253 in unexercised stock options from previous years.
Let’s take Jaques’s multipliers and work from the top down at AMEX, as shown in the table below:
Annual Total Compensation
55% of X
31% of X
Now remember that TC is Total compensation. That will include the employer’s side of FICA (US Social Security tax) and the employer’s side of income tax, and benefits. Let’s say that base health and other benefits cost the company about US$36,000/yr for each employee. That brings us down to US$129,354. If you figure that the employer’s side of taxes (all) is 20% of the total that’s left, we get down to US$103,483.
Wow! I’m working for the wrong company!
Even with a “Cadillac” benefits package, an office clerk (StrI) at American Express must be making $100k in salary! That’s pre-employee’s taxes, of course, which take about 30% — I think that this is the effective tax rate for most Americans, counting State and Federal and local income taxes — leaving that office clerk taking home $72,000 after taxes! Wow! American Express must be really in love with their employees! I spent the first 5 years of my working life before I made that much take-home pay combined!
Try this little trick with your own CEO and see what you get! Go ahead! It’s fun! Use it the next time that you are bargaining for a raise. I know that if I were in labor relations, the last thing that I would want my union stewards to understand is Elliott Jaques’s ideas of Felt-Fair Pay.
If your company isn’t in the AFL-CIO’s database — and let’s face it, not everyone can make the ire of the unions — you can get it for every publically traded company in their annual report. Many privately held firms also publish some of this information, if their private shareholders are distant enough.
Image Credit: Strike Committee at Mill Gate, Passaic, NJ, ca.1916 . Bain News Service, via Library of Congress collection.