Thursday, May 18, 2006

Overworked and underpaid

Jealousy is still alive and well in Australia. Only a week after the left were pointing out that cutting taxes actually means giving more tax back to those that already pay a lot, we now have the same hand-wringers whinging over the $21 million a year (or $1.8m/month, $400k/week, $60k/day, $2500/hr, $40/min or 67 cents per second) man, Alan Moss.

Poor old Mossy. This bloke works hard to get to the top. Starting at Mac Bank's predecssor in 1977. He worked his way up, playing a key role in the formation of the Bank. And, instead of lauding him as an example for all Aussie kids to aspire to, our journos just pour forth envy and complain that surely $21 mill is far too much.

But how do we know how much is too much? Far from being overpaid, could Mossy be getting less than he is worth?

The sin of jealousy is not confined to the Antipodes, over in the States there has been a similar controversy over the six fold increase in executive pay since the 1980s. Two economists have recently shown that there is a perfectly rational reason for this growth.

Their basic thesis is that a manager's value is a function of his talent multiplied by the size of the firm he is managing. Thus, a manger who adds 5 per cent value will be worth $45 more in a $1000 firm than managing a $100 firm. This is why the MD of your local fish and chip shop probably gets paid less than Sol Trujillo.

So applying this analysis to Al's pay packet it is clear that Mac Bank shareholders are getting him at a steal. Back when Big Mac first listed in 1996 it's market capitalisation was $1bn. Benefiting from Mossy's oversight, the firm's capitalisation has increased by a factor of 15, to $15bn. Unfairly, Alan's only recieved a just under 1000 per cent increase in his salary, from $2.3m back in 1996. The gap is so great that even the 8k/week ($1.1k/day, $48/hr, ...) donation from the Treasurer can't make up for this massive injustice.

7 comments:

Tom N. said...

EQUITY, NOT ENVY

Matt's post is another example of the confusion those on the Right appear to have in relation to equity; that is, they conflate calls for redistribution on equity grounds with jealousness or "the politics on envy". Matt uses the terms jealousy and envy several times in his post, and seeks to maximise the rhetorical effect by labelling it a sin.

However, while no doubt some people who have criticised Mr Moss's salary are indeed envious and would want to have his salary themselves, if they could, most are not "jealous" - which dictionary.com defines as "showing extreme cupidity; painfully desirous of another's advantages". They do not want Mr Moss's advantages; rather, they want his advantages reduced, or broken down and shared more equitably (as they see it) among members of the community.

Now, reasonable people can disagree over what constitutes 'an equitable distribution of income' (or of advantages or of utility).

But is it wrong to conflate arguments for redistribution on equity grounds with arguments for redistribution from envy.

Matt Canavan said...

According to you, Tom, other's want Moss's salary broken down and given to "members of the community." If this is going to lead to a more equitable distribution, it is likely that many earning less than $21 mill/year are going to get some of Moss's material afvantages.

Now it is an open question whether people are calling for more equity because they desire some of these advantages or they just feel sympathy for their fellow, potentially poorer man.

Perhaps, I am too cycnical, but I think many who call for redistriubution policies do so becuase they will be the beneficiaries, ergo they are jealous.

Tom N. said...

OPEN & SHUT

Unless Mr Moss's salary is given away to non-residents, it is indeed likely - as Matt states - that those Australians calling for redistribution would receive some of his income.

However, that is an effect; it tells us nothing about their motivation for calling for redistribution.

Further, $21 million (Mr Moss's salary) divided by the population of Australia amounts to about $1 per person. Does anyone really believe that that is sufficient motivation for individuals to demand a redistribution of Mr Moss's income (and/or the incomes of other CEO's) for the purposes of personal material enrichment?

Clearly it is not.

Personally, rather than it being "an open question", as Matt suggests, I think this is actually a fairly clear-cut matter - with sociotropic considerations rather than narrow self-interest the motivator for the criticisms of Moss's salary.

At a minimum, what this all means is that those on the Right who care about rigour should desist from the simplistic labelling of calls for redistribution as "the politics of envy" and recognise that other motivations may well be at play, and indeed that envy may have no role in such calls.

RT said...

1: You’ve confused egalitarianism with jealousy.

Steketee provides evidence that Australia is becoming inequitable and cites academic performance and income in Australia comparative to other nations to argue his case. Steketee also asserts that while “Australians may be less inclined than others to doff their caps to wealth and privilege, but that does not mean they do not aspire to it.”

So Australian’s aspire to wealth, and Steketee wants kids to start off on a more equal footing, and not be disadvantaged by their family background. This all sounds pretty fair (egalitarian, in fact), but where are the journos “pour(ing) forth envy”? In fact, where is Moss and his $21mil mentioned in this article?

You’ve done your sums Matt for the CEO and you’ve proved your point, management salaries are tied to growth and Mossy’s underpaid - he could maybe find another job if he’s unhappy. But don’t kick an item off with ”the left are all jealous” unless you want to actually link it to something that proves that statement.

2

“I think many who call for redistriubution policies do so becuase they will be the beneficiaries, ergo they are jealous.”

– No, that’s self-interest. They’d be jealous if they wanted it and didn’t actually need it - but as your linked article states, there is a disparity between education and wealth.

Should a child receive a sub-par education just because of their background? The people who call for redistribution maybe the beneficiaries, but that does not mean they do not need it.

Matt Canavan said...

RT, I quoted Steketee in reference to the budget not Moss's paypacket. There have been rants against Moss though. I was just too lazy to link to them (see here,
here and here.)

Taking money off people to satisfy your interest is jealousy in my book. But I'm not going to get bogged down in semantics.

"Should a child receive a sub-par education just because of their background?"

No, but I don't believe in stealing from/taxing people to get the desired result. If you feel strongly donate your own money.

In my view the political process does a poor job at compensating on a deserves basis, since it's too difficult to differentiate rent-seeking from geniune need. Better to make people put their money were their mouth is.

Tom N. said...

WHY WORDS MATTER

While one can agree, in sympathy with Matt, that getting "bogged down in semantics" would not normally be desirable, the problem is that Matt's initial post was strongly based on his use of the terms "envy", "jealousy" and "sin" to besmirch critics of Moss's salary. Surely, then, it is entirely appropriate to demand that these terms be used correctly, even if that involves semantics.

After all, we have all seen other debates and even policies derailed by the abuse of such terms.

An example is the Latham/Macklin schools funding policy, attacked by those on the Right at the "politics of envy", when at heart the policy was about equity. After all, most people do not seek polocross fields and swimming pools for their kids' schools; they'd be happy just with sufficient funds for books, classrooms and a decent staff-student ratio. (And some supporters of the previous policy, like me, who do not have kids clearly had no self-interest in the outcome). But through the constant mislabelling of this policy as being based on envy, rather than egalitarianism or equity (and/or concern for value for taxpayer dollars), we now have a situation where the ALP has dropped said policy.

To be fair, this is little different to the mislabelling, in previous times, by many on the Left, of any questioning or criticism of "tailored" aboriginal policies or multiculturalism as "racism".

The technique used in both cases was to attach a pejorative label to criticisms of policies so as the close down legitimate debate. This may satisfy the purposes of the partisan among us; but I submit that it is of little value for those interested in the actual merits of different policies and their supporting arguments.

Anonymous said...

Philosophically, I agree with all of the ideas expressed by Matt.

However, I feel that we should be attempting to persuade people, bring them to our point of view.

Using words such as envy, and describing taxation as stealing only further alienates those we are trying to persuade. The use of emotive language in no way makes the audience more amenable to our ideas.

Matt, you should check out the key ideas at http://www.freedom-force.org/freedom.cfm?fuseaction=creed. They have it right!