Contours of Compassionate Capitalism: Executive compensation levels

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

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 that decent people should stay away from it. But these days, more and more people have realised that when decent 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 to have 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 engaging in 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. Nor does it say that the labourer must give away his product or labour free of charge. 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 to giving things away free (charity). If I stand by the side of a busy road and distribute apples free of charge, many people will take an apple even though they have no need of one, thus depriving those who really do. Very often, things which are obtained free are not valued and are casually thrown away or discarded. In terms of karma, when we give something for free, we place the person who has received it in karmic obligation to us. If I have given medicine to someone without accepting any remuneration, I have put the receiver in karmic debt to me, which needs to be repaid 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 a product is rapacious. When the price is set unrealistically high so that the CEOs, executives or owners of businesses make millions in bonuses and profit shares, it is greed that drives the business. When a retail chain sources a dozen bananas from Colombia for the equivalent of 25 pence and then sells each banana in the UK for 50 pence (that is, around £6 for the dozen), there is likely to be a profit margin of around 80 to 85 percent, even after all expenses are deducted. Is this a spiritually ethical profit margin? (The example and the numbers I have quoted are not plucked from my imagination, but are close to reality.) Why cannot the poor farmer in Colombia be paid a much better price for his efforts in growing the banana, while reducing the profit margins? Similarly, why cannot 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, which is one aspect of the compassionate capitalism framework. In many large corporations today, the take-home salary (including bonuses, perks, incentives, value of shares, and so on) is more than 100 to 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 a conservative estimate. A USA Today article says that in 2011, the median CEO annual pay of S&P’s companies was $9.6 million, or around £7 million. A recent Guardian article about executive compensation levels mentions that in 2015 the top bosses of the UK’s public listed companies earned an average of £5.5 million.)

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

What is the karmically ethical compensation level of the CEO? Instead of making vague exhortations, I believe the time has come to develop a more actionable model. I would go with the idea that every layer of hierarchy should restrict itself to a maximum of 10 percent higher remuneration than the previous level, with the lowest-level employee’s salary as the base level in a company. This, in my view, is the karmically ethical course of action. Hence, if the person at the till in the supermarket is at the lowest level and 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 and no more. Even if the company has 15 levels in its hierarchy, the person sitting at the top will not take home more than £75,000 per annum (including bonuses, incentives and so on).

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 their employee five layers down in the hierarchy rents a studio apartment. This lower income gap empowers employees, encourages participation, reduces intimidation, and fosters closeness.

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

In my opinion, this is a reasonable system for businesses that wish to operate ethically. If CEOs or top executives are paid substantially more than this calculation allows, then, 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 others to reach this ‘top executive’ level by hook or by crook.

People who receive indecently large amounts of compensation are no longer buying things they necessarily need, but things they use to show off and build their ego. Too much money often leads to enormous amounts of waste and excess consumption. At the cost of the global environment, billions worth of products are produced to sustain the health, comfort and leisure of those with excessive compensations, entertain them and their families, and fill their homes with gadgets they use infrequently, if at all. As often happens with the scions of oil-rich Arab sheikhs, extreme wealth leads to extreme boredom, which in turn drives the search for the next ‘high’ – in goods, drugs or experiences – many of which may not be positive.

This greed-driven capitalism must stop, or at least reduce. Otherwise, more and more parts of the Earth will become unliveable in the coming decades due to the harmful impact of our rapacious consumption and waste generation on the planet’s climate. Perhaps the human race may look to colonise other planets and move there en masse, but the root of the problem will still remain.

How do we turn a new leaf in executive compensation? I think the government making laws may not be the only answer. This drive for values must come from the very top of companies that claim to follow business ethics. The CEOs of companies must begin to apply this model to their own compensations voluntarily and publicly. The entire organisation must adopt the principle of a maximum 10 percent salary hike between successive hierarchy levels. 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, efforts should be made to reduce the gap between the compensations in charitable organisations, government institutions, and private companies at similar hierarchy levels.)

The second step is to use part of the savings from reduced compensations to bring down prices of products and services, even when there are customers willing to pay high prices (often due to limited options), especially for staple products such as food and basic transportation services. Another part of the amount saved by reducing compensation levels can be paid to governments in return for their firm commitments to specific welfare or benefit schemes. For example, free libraries can be built, bridges linking remote areas can be constructed, more police officers can be recruited, roads can be widened, and more support can be given to the needy.

Of course, in the long run, we need to shape and guide society. We must train our children in this model of capitalism without greed. We must teach entrepreneurs not only the principles and practices of sound business, but how to practise compassionate capitalism.

There may be questions about the model proposed here. What if the salesman makes more money than his boss due to selling more and earning direct commission or incentives? What if a certain middle level of hierarchy earns more than a 10 percent difference due to overtime? Does the model require tweaking in the case of relatively flat companies? These nuances will perhaps need to be addressed in another post, without compromising the ethical foundation of the 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 begin the discussion on the contours of compassionate capitalism, with executive or CEO compensation 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