2008 Ends With A Whimper

2008 ends with a whimper. Our banks have failed, our car companies failed. Make no mistake, when they come to Washington lobbying for the bail-outs to "avoid failing" they've already failed. Does anybody see any sort of correction to the system that allows us to believe these newly bailed out companies won't just sail their ships further onto the rocks? Should we start pools on which one will come back for another bail-out soonest?

An economic system that allows your corporate leader enough income to retire within a few months is foolish, it encourages him to engage in high risk short term positive/long term negative behavior. While gaining in the short term at huge cost in the long term is a bad idea normally, a corporate CEO's compensation is mostly determined by the companies stock value for the next few quarters, so this behavior pays off. You get what you pay for, of course, and we continue to pay for high risk foolish behavior as we bail out sector after sector of the economy.

Here's a simple idea. We've already established the point that the Federal Government can draw salary lines with minimum wage. It's time for a maximum wage law. A maximum wage should be flexible, so we want a system that allows a company the ability to increase or decrease their maximum wage, but we don't want to make it too simple or quick to raise.

How do we set a maximum wage?

Currently some research is done into the ratio between the maximum and minimum rates of pay at corporations. Let's set our maximum rates as a ratio of the minimum, that allows a company to raise it's maximum wage by raising it's minimum wage.

What do we set the ratio to?

Take the lowest ratio in the G7 and set ours to 10% below that. Phase it in over 4 years, and have it "lag" the statistics by a year, going into law automatically if congress doesn't act. So if Japan is the lowest at 25 to 1, the US would go to 22.5 to 1 the following year. If a company is paying $18K as it's lowest annual full time wage equivalent then they can pay a maximum wage of 22.5 x 18000 = 405K. If they raise their minimum to 36K they double the maximum to 810K. Keep a year lag on this as well - if the employee wages are raised, they have to stay at or above that rate for a year before the maximum rises, but the maximum drops immediately on any minimum wage decrease.

This has an immediate effect on corporate governance. As the CEO I need a fairly sustainable increase in the minimum wage to increase my own maximum wage.

While I think this is a good idea on it's merits, we could start by limiting the law to those entities that got bailouts: the car companies, the banks, the wall street firms, AIG. We can impose a law requiring them to implement the maximum wage law, they've shown they are not capable of handling corporate finances without our help.