Feature

Germany: Why we should cap CEO pay

In Germany, we’ve leapt from a 20-to-1 ratio of manager to employee pay to 200-to-1.

Daniel BaumannFrankfurter Rundschau

CEOs don’t work 200 times harder than the rest of us, said Daniel Baumann, so it’s just not right that they should earn 200 times as much. Switzerland this week rejected a referendum that would have capped CEO pay at 12 times the wage of the lowest-paid employee—partly because of a “scare campaign” by major Swiss companies, which threatened to move abroad, and partly because that ratio was probably too low. But the Swiss definitely have the right idea. Look what has happened in Germany over the past 25 years: We’ve leapt from a 20-to-1 ratio of manager to employee pay to 200-to-1. Back in the 1990s, when CEOs routinely earned much less than a million euros a year, the top companies “seemed to have no difficulty finding good managers.” Yet now, those same companies offer their CEOs tens of millions. It isn’t market forces that drove up the salaries, but rather “decisions made in the cozy circles of the executive and supervisory boards,” where everyone is golf buddies and “unbridled greed” is considered normal. This inequity is not only “morally problematic,” but also dangerous for the stability of the country. When a few profit tremendously while their underlings can barely eke out a living, social unrest will surely follow.

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