One way to reduce the inequality between top management and the median paid employee (Chief Executives, the Sky Is the Limit for Pay, New York Times, Sunday Business, June 9, 2024: 3) is to reconsider the role of bonuses in the compensation package.
In an organization, everyone makes a contribution to the success of the organization. That contribution is of course greater for the CEO than for the janitor, or even for the research scientist at her bench. These differences in contribution can and should be reflected in different salaries: a living wage for the janitor and a good differential for the research scientist, and a large differential for the CEO. But when it comes to the bonus awarded for the firm’s performance, let equity reign. Let every member of the firm get the same percent bonus. Depending on the firm’s success, let everyone get a bonus of 100% of their salary or let everyone get 8% of their salary or let everyone receive no bonus at all. Reward differential contributions with different salary levels, but let the bonuses be an equal percentage of that salary, though of course, the CEO will get a bigger pot of money because the bonus is based on a higher salary.
The government could encourage the adoption of this policy by having a higher corporate tax rate for firms that do not adopt it..
