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Date:         Mon, 14 Dec 1992 13:04:59 -0500
From:         Andrew Allen <E7L8ALL@TOWSONVX.BITNET>
Subject:      more responses to andy f.'s comments
Comments: To: politics@ohstvma.bitnet

>>>Paying executives a lot is necessarily bad management?  Or, is O'Andy
>>>claiming that lowering executive pay will result in better executives?

>>Compensating executives out of proportion to the value of their
>>work is poor management. Rewarding failure is poor management.

>That's all well and good, but either O'Andy is ducking the question
>or he's equating "out of proportion" with "a lot".  His choice.

Given a number of observations that I've made previously (and supported
with stats) regarding the increase in individual productivity among
workers and the rising pay inequity between top management and workers
(ratio of 12:1 in the early 60's, 93:1 in the late 80's) I beleive
that "out of proportion" is a valid terminology.

Beyond that, keep in mind that we are discussing the basis for
a tax code, which *may* encourage businesses into making decisions
that have positive social ramifications in addition to raising
revenue.


>>Increasing compensation for executives while cutting pay for workers
>>when the productivity of workers is increasing is poor management IMHO.

>Really?  What if the cause for the increasing productivity is
>MANAGEMENT activity.  More stuff, lower costs - most people think
>that's "good".  Does O'Andy disagree?

You think that productivity is "more stuff, lower costs?" Or are
you just obfuscating?

Productivity (individual worker output) increased while real wages
decreased in the 80's. Also the size of the workforce decreased since
less workers provided more output.


>>>Suppose we have two managers, both equally skilled.  In O'Andy-land,
>>>neither can be paid what they're worth - their compensation is tied to
>>>some arbitrary index.

>>I didn't say that they *couldn't* be paid more; I said that the
>>company couldn't *write off* in excess of a certain amount.

>Yup, and marijuana isn't banned at the federal level, it is just
>heavily taxed.

>What social good justifies this extra tax?

Collecting a fair share of taxes from the corporate sector, while
at the same time providing a stimulus to increase the worker's
share of corporate profit,which will stimulate the economy and
increase tax revenue. This boon to the economy could be put to
any number of uses, paying down the debt, lowering overall tax
rates...


>>>One happens to have a lot of money, so she can
>>>buy a lot of stock in the company she works for and benefit from any
>>>stock price increase resulting from her skills.  The other doesn't
>>>have a lot of money, so she only gets her salary.  Is this good?  Or,
>>>does O'Andy have a stock-option loophole in his plan?

>>Presumably the person with money can invest it anywhere and will
>>put it wherever it will receive the largest return regardless of
>>whether it is through her own skill at management or her/her broker's
>>skill at investment. If she chooses to invest it in her own company
>>regardless of the return, she is merely placing it where she feels
>>that she is getting the most value for her investment. (there may
>>be some intangible value associated with investment in her own
>>company, even if the direct return is lower than another investment
>>might provide) This is an irrelevant argument.

>No, it isn't.  O'Andy wants to cap the salaries of poor but skilled
>managers.  He doesn't want to admit that, but ....

No, I want to give managers a stimulus to raise the salaries of
workers; in essence giving the workers a raise gives them a tax
break.

Your argument, however is completely irrelevant; if either of the
two managers in your example invest money in their company, it does
not increase their salary. Their salary is set by whomever is in the
structure (VP, CEO, board, owner, etc.) above them. As I pointed out
the manager with money to invest will invest it wherever it is most
prudent (in their estimation) to do so.


>>>How do we determine the appropriate ratio of managers to workers?
>>>(What's a worker anyway?)  Does it depend on the company or is it
>>>industry-wide?
>>
>>Industry wide, they will naturally be somewhat arbitrary, but,
>>in general it should not be difficult to come up with an average
>>ratio of management/supervisors/workers.

>So?  Why is the AVERAGE "correct"?  Why should it be tax-advantaged?

>It looks like O'Andy is confusing coming up with a number with coming
>up with a number that has the relevant properties.

For tax purposes "avaerage" will be good enough, companies will adjust
to attain maximum advantage from whatever rules are made. The current
tax code has any number of bizzarre variations and companies do
just fine with whatever arbitrary rules that Congress comes up with.


>>A worker is a non-supervisory person whose labor creates or adds
>>economic value.

>That's a rather useless definition in many high-tech occupations.  In
>many cases, the "supervisors" are the low-paid employees.

So what? Don't like it? Come up with a better one for your field. I
would remind you though that the high tech field is still (and likely
will remain) a lot smaller than the fields that my defn. applies
to.

>Moreover, is the appropriate salary for a supervisor correlated with
>the number of people supervised?  (In some cases, I'd argue that
>the more people supervised, the more valuable the supervisor while
>in others, the fewer the better.)

Salary is not as important an issue for supervisors as is the sheer
number of layers of them; their salaries will not exceed those of top
management so as long as they fit into the ratio then market
pressures will set their salaries.

>Why does O'Andy want to use measures other than "bottom line"?  That
>is a direct measure of the effectiveness of an organization in
>translating inputs to outputs.  What does he want from GM besides
>decent cars at a low price?  Why isn't he willing to pay for those
>other things?

I want GM to pay it's fair share of the total tax burden. I want it
to offset its share of the costs of educating and training the
work force, building and maintaining the infrastructure, government
services that it receives. I want a mutually beneficial equilibrium
to be attained between what GM gets from society and what it puts
back.

Since the 50's the corporate share of the total tax revenue take
has shrunken considerably; from 39% of the total in the 50's to
only 17% in the 80's, meantime the cost of all the services that
the corporations use has increased.

>>>So?  Sensible people with positive incomes will double their debt to
>>>double their income.  (In some cases, it may even make sense to triple
>>>the debt to double the income.)

>>Sensible people also exploit the rewritten chapter 11 rules that limit
>>the market's discipline of those who acquire debt too freely, making
>>the corporate bankruptcy business a major growth industry in the 80's.

>Huh?

Don't worry andy; I frequently say that when I look at your responses. B)

What I was noting is that one of the prime reasons for the outrageous
growth of corporate debt is the rewritten rules (1978) regarding
chapter 11, which make "failure" less of a bogeyman than it used
to be for managers... they can drive their company into bankruptcy
and keep their jobs now.

Factoid: In the 1980's one in every three businesses filed to reorganize;
this is 3 times the rate prior to the rewriting of the bankruptcy laws.

>-andy

-other Andy
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