Contours of Compassionate Capitalism: Executive compensation levels

In my book KaRmasutra The Karma of Sex, I had written about the framework of Compassionate Capitalism (in Chapter 3 of the book). Some of my readers got back to me and said it is bit idealistic. Some of them said that the fuel for capitalism is greed and when we remove greed, the edifice of capitalism will crumble like a pack of cards. Others mentioned that spiritual leaders anyway strive to be poor and therefore the spiritually inclined would not want to be associated with a business anyway.

Let me start with the last argument first. I have heard a similar argument about politics. People have said that politics is a dirty game meant for the power-hungry and nice people should anyway stay away from it.  But these days, more and more people have realized that when nice people stay away from politics, the political climate in a country degrades. Even if a few decent, spiritually-grounded people enter politics, the quality of political discourse improves substantially. Voters start having a choice if they want to vote differently.

In a similar way, people without excessive greed must get into business. This is not a spiritual paradox. Those who have read the Bhagavad Gita can vouch that it does not prohibit people from doing business or trade, as long as it is done without undue attachment to money (greed). The Bible also says that the labourer is worthy of his hire. The Bible does not say that those who seek to enter the kingdom of God must not ask for remuneration. The Bible also does not say that the labourer must give away his product or labour free. However, the Bible does warn against greed and obsession with material riches.

As the book, Karmasutra The Karma of Sex (in chapter 3) explains, giving away something free is not always desirable. In fact, there are many disadvantages of giving something away free (charity).  If I stand by the side of a busy road and distribute apples free, there are many of those who will simply take this free apple although they have no need of one, thus depriving those who really need apples. Very often, things which are obtained ‘free’ are not valued and casually thrown away or discarded.  In terms of karma, when we give something for free, we put the person who has received it free from us, in karmic obligation to us. If I have given medicine to a person without accepting any remuneration, I have put the receiver in karmic obligation to me, which needs to be repaid to me in this life or the next.  Hence, for all these reasons, it is desirable to charge a reasonable, ethical price for any product.  This is the way to do ethical business and there is nothing spiritually wrong in being a businessman.

As explained in my book with several examples, negative karma accumulates when the price of the product is rapacious. When the price is unrealistically high in order that the CEOs/executives/owners of businesses make millions in bonuses and percentages of profit, then it is greed which drives the business. When a retail chain sources one dozen bananas from Columbia for the equivalent of  25 pence and then sells per banana in UK for 50 p. in their stores (in other words about £6 for the dozen), there is likely to be a profit margin of around 80 to 85 percent, even after all the expenses are deducted.  Is this a spiritually ethical profit margin?  (The example and the numbers I have quoted is not plucked out of my imagination, but one close to reality). Why can’t the poor farmer in Columbia be paid a much better price for his efforts of growing the banana, while reducing the profit margins?  Similarly, why can’t the lower level employee in the corporation be paid a better salary?

In today’s post, the focus is more on Top executive compensation levels, one aspect of the compassionate capitalism framework. In many big corporations today, the take home salary (including bonuses, perks, incentives, value of shares etc.) is more than 100-150 times the salary given to their lowest paid staff. In other words, while the receptionist or the person at the till in a shop may be making £28,000/-, the CEO takes home more than £ 2.8 million per annum. (And this is the conservative estimate. A USA today article says that in 2011 the median CEO annual pay of S&P’s companies was $ 9.6 (or around £7 million). A recent Guardian article about executive compensation levels mentions that in 2015 the top bosses of UK’s public listed companies earned an average of £5.5 million.)

Do the CEOs of corporations in UK and US need to take 100-200 times the salary of the lowest paid employee in a company/corporation?

What is the karmically ethical compensation level of the CEO?  Instead of making vague exhortations, in my opinion, the time has come to have a more actionable model. I would go with the idea that every layer of hierarchy should restrict itself to a maximum of 10 % higher remuneration than the previous level, with the lowest level employee’s salary being the base level in a company. This, in my opinion, is the karmically ethical course of action. Hence, if the person at the till in the supermarket is the lowest employee level and he/she has a take home annual salary of £ 20,000/- , then the next layer of hierarchy - the supervisor,  should take home an annual salary of £22,000/- per annum and no more.  Even if the company has 15 levels in its hierarchy, the man sitting at the top will not take home more than £75,000/- per annum (including bonuses/incentives etc.).

There are various advantages to this system. Firstly, it reduces the pay gap between different hierarchy levels and creates a more empathy-driven company. The CEO does not live in a fully-owned 12 bedroom mansion while his employee five layers down in the hierarchy rents a studio apartment. This lower income gap empowers employees, encourages them to participate more, intimidates them less and brings closeness.

The second advantage to this system is that if the top executives want to increase their own compensations, they will have to increase the base salary of the lowest paid employee.  In other words, the system will not cap the CEO compensation level, but only cap the percentage difference in compensation between successive hierarchy levels to 10 %.  If the top guy in the company wants to take home a cool £ 1 million yearly compensation, no one stops him/her, but the lowest level employee must be paid a cool £ 264,000 per annum (assuming a 15 level hierarchy).

In my opinion, this is a reasonable system for businesses which want to operate ethically.  If CEOs/top executives are paid substantially more than this calculation, in my opinion, the company has moved into the bandwidth of greed. We are creating ego-driven CEOs, who think of themselves as demi-gods separated from the ‘common’ employees by millions. This also creates the obsession in some of the others to reach this ‘top executive’ level by hook or crook.

People who have indecently large amount of compensation are no more buying things which they necessarily need, but buying things to show off and build their ego.   Too much money often leads to humongous amounts of wastes being generated and too much food being eaten, generated or wasted. At the cost of global environment, billions worth of products are being produced to maintain the health and well-being of those who have indecent levels of compensations, entertain these people and their relatives during increasing amounts of leisure time that they find themselves with and stuff their houses with gadgets they often use infrequently or not at all.  As happens often with the scions of oil-rich Arab sheikhs, extreme wealth often leads to extreme boredom and sometimes motivates people to search for the next ‘high’ in goods, drugs and other ‘experiences’, many of which may not be positive.

This greed-driven capitalism has to stop, or at least reduce. Otherwise, more and more parts of the earth will become unliveable in the next few decades due to be bad impact of our rapacious consumption, generation of wastes etc. on earth’s climate. Perhaps, human race might look to colonise other planets and move there en masse, but the root of the problem will still remain.

How do we turn this new leaf in executive compensations? I think government making laws might not be the only answer. This drive for values must come from the very top of companies which claim to follow business ethics. The CEOs of companies have to start applying this to their own compensations voluntarily and publicly. The entire organisation must adopt the maximum 10 % hike in salaries between different successive levels of hierarchy principle. This is the first step in compassionate capitalism.  (As an aside, I do believe that even the CEOs of Charitable organisations have the right to take karmically ethical salaries. In fact, attempts should be made to reduce the gap between the compensations in Charitable organisations, government organisations and other companies at similar hierarchy levels.)

The second step is to use part of these savings from reduced compensations to bring down prices of products and services even when there are customers willing to (often due to limited options) pay high prices, especially if the products are staple products such as food, basic transportation services, and so on. Another part of the amount saved by reduced compensation levels can be paid to governments in return for their firm commitments on certain welfare or benefit schemes. For example, free libraries can be built, bridges linking far flung areas can be made, more police recruitments can be made, roads can be widened and more needy people can be given slightly higher benefit amounts.

Of course, in the long-run we need to mould and show the way to our society. We need to train our children in this model of capitalism without greed. We need to train entrepreneurs not only the principles and practices of good businesses but how to practice compassionate capitalism.

There could be some questions about the model proposed here. What if the salesman makes more money than his boss because he sells more and earns direct selling commission/incentives?  What if a certain middle level of hierarchy earns more than 10% difference due to overtime work?  Does the model require further tweaking in case of relatively flat companies? These nuances would perhaps need to be addressed in another post, without compromising the ethical outlook of the entire model.

This is just a sounding board for thoughts and ideas, a starting point for debate. The model and system proposed here can be tweaked and modified, but somewhere we must start the discussion on the contours of compassionate capitalism, executive/CEO compensation level being just one area of focus.

We owe this to our future on this planet. 

©Staju Jacob, 2016.

Staju Jacob is the author of path-breaking book Karmasutra The Karma of Sex, which deals with the karmic spirituality of consensual sexual actions. This book is available globally on various Amazon sites in Paperback , Kindle, Sony Kobo, Google books, Iphone Ibook etc.  He can be contacted on Twitter @KaRmasutraTKOS