06/09/04 — Salaries: Thoughts on a bill to limit the pay of company leaders

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Salaries: Thoughts on a bill to limit the pay of company leaders

A proposed state law would limit the amount that a company could pay its chief executive. The North Carolina Citizens for Business and Industry, a group whose membership is composed largely of chief executives, ridiculed that.

The proposal is in the form of a bill introduced by Rep. Paul Leubke, a Durham Democrat. The bill would make it illegal for a company to pay its chief executive more than 50 times the wage of the lowest-paid employee.

The NCCBI did some arithmetic. North Carolina’s annual manufacturing wage is $744.39 a week, or $38,708 a year. Multiplied by 50, the boss could get $1,935,414. That, said the NCCBI, would “actually give fat pay raises to most CEOs.”

The organization’s mathematics is correct, but its premise is faulty. The bill refers to the lowest-paid worker, not the one receiving the average wage. The NCCBI’s math is based on average wages.

A company that pays its workers an average of $744 a week might have others making as little as $5.15 an hour, the minimum wage. Carry through on the same math and the chief executive could make a half-million a year. That’s a handome sum, but it isn’t as grandiose as the nearly $2 million that the NCCBI came up with.

Still, Leubke’s bill is flawed in so many ways that, in a logical world, we would be surprised that anyone would even consider introducing it. Alas, logic is in short supply in our seats of government, and you can no longer be surprised at anything that leftists would do to take control of the world and all of its inhabitants.

If this bill passed, it could be a crushing blow to North Carolinians who are trying to attract more jobs to the state. No CEO is going to establish a business in — or move to — a state in which the Legislature controls his salary.

But the essential reason that it is a bad bill is that it would involve the state in a private company’s private decisions. The state has no business there.

If the owners of a company wish to pay its leader $2 million, or $5 million, that is its prerogative.

And, in fact, they might have good reason for doing so. Suppose the leader of a company caused it to increase profits by $5 million, and the expansion provided jobs for dozens more workers. Wouldn’t the company be justified in rewarding the leader? Wouldn’t it be wise to pay him enough to keep him?

And wouldn’t the community be better off if it did?

Like most government intrusion in private business, Leubke’s bill is a product of short-sightedness, sour grapes or stupidity.

Published in Editorials on June 9, 2004 10:58 AM