Very cool, if true

"There should be a maximum amount that people are allowed to earn in a year" - NO.

In your enthusiasm to clamp down on executive pay you basically ignore the existence of the self-employed. Go back to the drawing board.

As for why I'm opposed to a cap -- consider for example a self-employed musician who manages to somehow achieve a once-in-a-lifetime #1 hit. Are you going to cap their income for that year, when it's around 30% of their lifetime income and their entire pension and is achieved after years of struggle and penury?

Yes, it's an extreme case. But those of us who are self-employed go through good years and bad years, and there's nobody around to carry us when things are bad. (Just try claiming social security benefits of any kind if you're self-employed!)

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andrewducker

I don't have any enthusiasm to clamp down on executive pay.

And I absolutely agree that the self-employed (or those who own their companies) are not covered by this at all, which is a massive hole in any kind of maximum pay.

Just look at Mark Zuckerberg for a topical example.

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This argument is commonly made in talk of pay caps: "What about a sportsman/artist/musician who does something brilliant once..." Well, what about them? What on earth makes a single year where you do something really great worth a lifetime of pay? Why does a self-employed musician *deserve* to be paid for a lifetime for a year of work? It seems utterly bizarre to me as an argument.

Why is the self-employed sportsman/artists/musician any more entitled than a scientist/banker/grocer to be paid for an entire lifetime for only a short period of effort?

I appreciate your point about "good years"/"bad years" but frankly all jobs have that. It's a bad year to be a public sector worker right now. You'd think I was a loony if I claimed "I've done such good research this year I should be paid for 40 years in case I don't do anything worthwhile again."

When musicians are being interviewed about how they're not making money for something they did 30 years ago... well, let's just say I'm not overwhelmed with sympathy.

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Patents sort of address your point on scientists.

One might argue that a research scientist working in house had exchanged the risks and rewards of patenting their once in a life time invention for the risks and rewards of being a salaried employee.

The good year for musicians or writers can often be the result of years of underpaid work - their rewards and the efforts they make don't neatly fall into years.

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Patents sort of do not address my issue on scientists. Patents sort of half way address my issue on engineers maybe if they want to give up actual engineering and try to invent something. Richard Feynman was undoubtedly an excellent physicist, likely one of the world's best. I think he owned one patent that was a joke and was notionally valued at one dollar (it was for the nuclear submarine IIRC).

One might argue that a research scientist working in house had exchanged the risks and rewards of patenting their once in a life time invention for the risks and rewards of being a salaried employee.

One might but what are those rewards given that "in house" means public sector with incredibly low job security.

The good year for musicians or writers can often be the result of years of underpaid work - their rewards and the efforts they make don't neatly fall into years.

Look at it this way -- if an MP said "It took me years of effort to get to be an MP. It's an extremely risky job. I can do my job to the best of my ability for years and then be voted out and never work as an MP again." he or she would be right. If he said "I therefore deserve to be paid for the rest of my life and never have to get another job again." he or she would be lynched.

Seriously, why can artists, musicians and writers get away with making the argument "what if I never do anything useful with my life ever again? How will I get paid?" and not have people laugh in their face? I actually find it hard to cope with the mindset of people who seem to genuinely believe that they should be absolutely fine being completely unproductive for many years if they did something great one year. Maybe, just maybe, it would be time to come down to earth and say gently to them: "if you've not done anything worthwhile as a musician in ten years, perhaps you should actually get a job?"

I really don't get why we accord this special status.

So yes, if someone does some amazing bit of artistic work I'm fine and happy that this can keep them in bread for five years, ten years, whatever... but the belief that somehow that should be it for their entire lives... well, I find it a bit boggling. But there you go. We live in a strange world where someone kicking a football about for a year or two could, quite happily should they choose, scratch their arse for the rest of their life and live off the interest.

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hawkida.livejournal.com

Maybe creative stuff is special because it lives on. People keep reading the books, watching the film, playing the music. Whilst the operation they had only saved their life once, and the bus driver's journey was only convenient when they happened to be going across town.

Besides, those successes earn themselves, don't they? You and I don't get paid per idea, we get a regular wage/salary. The creative work becomes a product and people pay for a bit of it that they get to keep or rework - you haven't paid a million for a single that hit number one for two months, lots of people paid towards that final sum that lands in the artist's lap. And it's a gamble - the arty types know perfectly well that the chances of failure and scraping by on the breadline are far higher than hitting the big time - if they're prepared to take the risk then good luck to them, and if they happen to produce something that is the right level of quality at the right time then why shouldn't they reap the rewards of their creation?

I do find it harder to justify footballer money, though - that doesn't live on as such.

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Maybe creative stuff is special because it lives on.

I'm not convinced by this argument. Creative stuff does not live on any more than, say, science, engineering, political or military things. I can name a few greek playwrights, more greek philosophers, mathematiciancs and scientists... But the method of remuneration is surely historical accident rather than because "creative stuff lives on". After all, at other periods in history the artist or creator would be a wage slave too. Most of the great musicians of the 18th and 19th C would be paid a wage by a sponsor.

the chances of failure and scraping by on the breadline are far higher than hitting the big time

That is true for many many people and ideas. People running start up companies, trying to get a start in politics... (funnily enough, I saw a play the other week about the trial of Dan White who shot Harvey Milk... part of the evidence given in his trial was the stress induced by his struggles to get by on the low wage he could get while trying to be elected as a San Francisco supervisor, a post he previously held).

I do find it harder to justify footballer money, though - that doesn't live on as such.

Well, I think that's it encapsulated. It's about historical accident and who we sympathise with. You happen to sympathise with "creatives", I imagine because you rather like their work. I can imagine others taking the opposite view that a footballer deserves to be rewarded well for the entertainment he brings to millions whereas who cares about somebody churning out obscure books or poems that not so many people read.

I just have no time whatsoever for people who somehow think that a "creative type" is uniquely different. They're in a business like anyone else.

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hawkida.livejournal.com

I still think it's a bit different. Philosophers and scientists contribute to something that goes on and develops. Musicians and writers have products which sit on shelves (or hard drives) and get reused over and over.

There's no model for paying 79p towards a scientist's efforts and getting to use his work over and over again, but that's exactly what you get from a musician.

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That's a historical accident of the times we live in. It used to be there was no way of paying a musician for a "product" as the musician would write a composition and after transcription it was "out there". I very much doubt J. S. Bach or Mozart could make the money to survive by being paid "per performance". In another universe, where near zero cost digital reproduction happened earlier, we'd probably think it a bit weird to pay a musician a fee to "own a copy" of their work in the same way we would think it weird to pay Gustav Eiffel a percentage for a plastic model or to look at a photo of his tower.

I don't think we should be guided in our opinion of what "should be" by the accident of where we happen to be now.

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Time was there was no such model for a musician -- maybe in further time we will forget there ever was such a model. There still is really no such model for a painter (well, you can buy a print I guess) or a sculptor (they can sell a piece once but not usually repeated copies -- with the possible exception of Warhol's soup cans). As someone else has pointed out, there's a partial model for some such scientists (who can get a patent). When you think about it, some musicians are "waged" -- if they play in certain types of orchestra they are paid per performance regardless of the crowd. Does that make them less "creative"? Writers again fall into both camps. Some writers don't get paid per "sale" (for example journalists) but are simply waged and some have a mix taking both types of job.

I don't think the existence or otherwise of such a model tells us anything about how such a person *should* be paid though. In the end I don't feel too strongly about whether someone is paid a fixed amount or by selling individual copies of their work. I do feel pretty strongly about people making cases that their particular type of work is special and deserves exemption when we consider what is right or fair for people to expect.

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I see where you're going with the scientists & engineers point but not all scientists work in the public sector some work for private sector organisations. Some output from scientific research has direct commercial applicability over the life of a patent.

One of my dad's patents was probably worth over its lifetime a couple of dozen million dollars. Dad's salary paid his mortgage for a year and he bought a car.

People are free (ish) to pick the mix of risks and rewards they want.

I think any system that involves a personal pay cap leaves cash on the table to be appropriated by others. Football fans seem very keen to watch some people play football. I think if you capped footballers salaries at a per capita level you either give footballs fans something for cheaper than they are prepared to pay for it or more likely gives more money to Sky.

Is this an IP issue for you more generally?

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Actually football wages did used to be capped at a particular set level in the past. At one point the maximum wage for a footballer was £4 per week.

http://www.spartacus.schoolnet.co.uk/Fwages.htm

Is this an IP issue for you more generally?

I think it's a general objection to the idea of "special pleading" that "my profession/job/career is extra important". Lots of very wealthy rock stars or sportsmen wail about high taxes because they say that they only earn for a very short portion of their lives. It never seems to occur to them that, perhaps, the solution to earning only for a short proportion of their lives might be to do something else to earn. They seem quite happy with the proposition that they should only work for a small proportion of their lives. Nice for them I suppose.

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Your average novelist, working in the UK, earns -- according to a Society of Authors survey a couple of years ago -- just £4,500 a year. 80% of them earn less than £18,500 a year. Some lucky few earn more (in a handful of cases much, much more) than that per year -- virtually nobody earns as much as the average CEO of an FT100 company, however. (Well, for "virtually" read "you can count them on the fingers of one hand".)

Now. Those low earnings are not the result of being unproductive -- they're often the result of (a) having to hold down a part time job to allow them to eat while pursuing their vocation, or (b) working their way up the learning curve.

I spent well over a decade on the low side of that £4.5K/year income average. I'm now on the high side of the £18.5K/year bracket. But I wouldn't be earning that well if I hadn't spent a lot of time sweating in return for virtually no remuneration. In fact, I reckon I was writing for around 25 years before I hit the (not very) big time.

The point is: the bits of art you recognize and appreciate are not sudden bursts of genius, they're the outcome of the proverbial 10,000 hours of practice, carried out with virtually no remuneration and very little encouragement along the way.

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I don't think the existence of poorly paid musicians or artists tells us anything about whether well paid ones should get special treatment. I've got lots of friends who write or are in bands in their spare time who would love to make more money at it -- and good luck to them as a lot of them do work very hard at it while holding down a job.

But this really isn't the point -- and I certainly did not intend this to be about you personally or your personal finances (of which I have no idea other than what you told me above). I'm simply reacting to the idea that you put forward that the self-employed (and particularly musicians) should not have a salary cap in case they had a "once-in-a-lifetime hit". Why on earth do you operate under the belief that someone naturally deserves to be paid for their entire life for a once-in-a-lifetime hit? I can see that if you didn't consider it hard "oh, he wrote that song, you know, it's dead dead catchy and sold ten million and now he hasn't much money" might seem harsh. But really do you believe that one act, however, extraordianary in a short space of time somehow naturally gives someone a right to a life of idle luxury?

As for the argument that there are plenty of low paid musicians and writers. You are correct. They certainly would not be affected by a salary cap. However, the existence of low paid musicians and artists doesn't tell us anything about how we should treat or tax the high paid ones. If a banker argued that we shouldn't cap his pay because there are a lot of low paid bank workers we'd think he was a lunatic. Why can a musician or a writer get away with the same argument?

I have no idea what you earn and the argument certainly is not about you but about those high enough to (potentially) have their salaries capped which was where the discussion was.

Then there's the "struggled in poverty for years" argument which you made. If a super wealthy CEO of a company said that he struggled in poverty for some time (I think Alan Sugar could reasonably make this case at least to some degree) I don't expect you would have too much sympathy for the argument that we should treat him favourably on tax grounds for that argument.

So sure, I appreciate that being an author or a musician is usually incredibly poorly paid. I sympathise with the uncertainty of the job and the uncertainty of its rewards. However, I still have no truck with the idea that those who have "made it" to the top get special pleading on any tax situation we might consider because they once had hard times, because others in their profession currently have hard times or because there's a high chance they will again have hard times.

So let's take this aside the natural tendancy for people to feel favourable to those who make books we like and music we like.... if tomorrow, some higher tax band or salary cap came in and Alan Sugar said it should not apply to him as he is self-employed (not sure he actually is but let's for the sake of argument say he is) and struggled in poverty for years, would you honestly feel much sympathy for that argument?

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I'm simply reacting to the idea that you put forward that the self-employed (and particularly musicians) should not have a salary cap in case they had a "once-in-a-lifetime hit". Why on earth do you operate under the belief that someone naturally deserves to be paid for their entire life for a once-in-a-lifetime hit?

Let's say they have a working life of 40 years. First decade, they earn 10K a year. Then they have a hit that makes £1M in a year. Then they have 29 more years averaging 20K a year. Total: £1680K.

Suppose we institute an earning cap at 200K. We just halved their lifetime earnings.

Compare with a job-for-life steady earner whose income grows from 10K a year to 40K a year over the same 40 year period; they earn £1M, and never get within spitting distance of the cap.

Progressive income tax doesn't really have this problem because it's progressive. A hard income cap, on the other hand, is regressive.

They also provide an incentive for tax avoidance. I am a writer; the job isn't scalable, I can't hire people to work for me at what I do. Imposing a cap on income would, however, give me an incentive to form a limited company and hire minimum-wage workers to sit around doing nothing, while using some elaborate shareholding scheme to avoid tax by shovelling the company profits offshore or something. Or by arranging my publishing contracts so that the publisher's payments to me are timed to stagger across tax years. It's nonsense on stilts.

A salary cap ... is a bit different. (Implication: you can hit the cap on what an employer pays you, but if they're okay with you moonlighting for someone else you can work more.) It's still a crude control, though -- I'd much rather see an hourly wage ratio cap, whereby the highest-paid employee in an organization can earn no more than a fixed multiple of the lowest paid employee's wages. (CEO wants a rise? Janitor has to get one first ...)

And I have no problem whatsoever with progressive income tax all the way up to 99% in the highest bracket.

Edited Date: 2012-02-11 03:52 am (UTC)

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Now actually, I think an income cap is too crude a measure myself so I guess for most of this we're actually not in disagreement. Progressive taxations system (rather than the one we have now which is when all is taken into account regressive), linking lowest paid with highest paid, all great ideas.

My comments were not really to be super supportive of high level cap on income but to be in opposition to the idea of making exceptions in a taxation system for those who are self-employed or who have uncertain or uneven incomes.

A hard income cap, on the other hand, is regressive.

Technically it's not. A taxation system is regressive if the proportion of tax paid on income goes down (or stays the same -- in mathematical terms monotonically non-decreasing) as income goes up but this is only considered within a single income year. The hard income cap is a progressive tax system in the technical sense. I don't think it would be possible to have a tax system which charged tax yearly but was progressive over a lifetime (apart from systems which simply refunded you lots). Anyway, that's a technical quibble which I'm afraid is the sort of thing I'm unable to resist.

We just halved their lifetime earnings.

Which seems harsh but if we took someone who left school and immediately went into a well paying job which was taxed in the 40-50% band for most of their income -- we just almost halved their lifetime earnings too.

But look, actually, I wouldn't argue an income cap was the best way of dealing with these things myself. A progressive income tax rising as you suggested would be much more what I would consider reasonable. But surely that has the same issues that you considered. If top incomes are charged 99% then someone with a very good year for earnings and lots of poor years for earnings suffers more than someone who constantly earns well.

Imposing a cap on income would, however, give me an incentive to form a limited company ... Or by arranging my publishing contracts so that the publisher's payments to me are timed to stagger across tax years. It's nonsense on stilts.

Well, this is pretty much where we came in as far as this argument goes. When they were paying 95% income in the 60s the Beatles wrote the song Taxman (one for you nineteen for me) about how unjust they thought it was, partly on the assumption that they might have only a short career of earning that level of money.

Any system which taxes the super-wealthy (until their pips squeak -- lovely phrase) has the risk of them going elsewhere with a more favourable tax system (hence Monaco). And you're right, it is "nonsense on stilts". A kind of ghastly "prisoner's dilemma" where a country which wants to impose a high taxation on the wealthy is vulnerable to another country saying "oh, come and live here, we charge you nothing and we're stacked full of yachts and casinos".

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chess

If you're self-employed, do _you_ earn that in that year, or does you-as-a-company earn that in that year?

I would be quite happy for the self-employed who have an uneven income stream to make a couple million in revenue for them-as-a-company one year and pay themselves the salary cap over a couple of years to take it out of the company again.

(Or they can re-invest the bit they can't take as salary in tools etc, just as companies with more than one employee do...)

There should totally be a maximum amount that a person can earn in a year as in a maximum amount they can acquire for general unrestricted spending, whether they've had lean years before that or not.

There are undoubtedly issues around unscrupulous financial types being 'self-employed consultants' and claiming a lot of stuff as 'company expenses' to top up their capped salary, but at least having to do that slows them down a bit, rather than them actually being able to take home over a million quid free and clear every single year...

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If you're self-employed then by definition you are not a company.

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chess

Yet I know that a lot of my self-employed friends do stuff like claim business rates on equipment etc - so I thought it was kind of a halfway state?

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Very different legal situation. Self-employed means you're trading as yourself. No limited liability, you're not on salary, everything goes straight in and out of your personal accounts. Invest badly in plant (if, say, you're running a small business) and end up illiquid? You can be declared personally bankrupt. It's not a huge risk for a writer as long as they do due diligence on their research, don't plagiarize, and don't libel anyone, but it can happen. Flip side: you don't have the overheads of running a company.

There are a lot of folks who operate as a one-person limited company. "The company" does the work and pays them a wage. My accountant's advice was not to bother -- firstly, the company is taxed on any profits it makes, and secondly, you get to pay income tax on top, and thirdly, you have to file annual audited company accounts (yet more expense).

The reason it generally happens is because some employers insist that contractors work for another company so that they (the employer) can maintain the fiction that they're merely paying another company to provide a service and have no obligations to the contractor under employment law -- it's a work-around for the IR35 accounting regs (basically HMRC determined that if you hire someone to work in your office under your direction using your equipment, you just hired an employee, not a self-employed contractor -- the big cos then turned around and responded by paying a single-employee company to do the job, evading the obligation to recognize the employee's rights as well as paying their tax under PAYE).

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chess

Aha, that would be the difference then!

I'm still convinced that a yearly earnings cap could be combined with some kind of smoothing mechanism to deal with irregular income streams, although it might turn out to be the case that it's more paperwork than it's worth for most people who could be affected (and they'd only find out after they fell foul of it that they should have set up the paperwork, of course...).

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desperance.livejournal.com

I think you mistyped.

"There should be a maximum amount that other people are allowed to earn in a year."

There. Fixed that for you.

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anton-p-nym.livejournal.com

I am somewhat in favour of a maximum "share" of earnings someone is allowed to take home from a company (in the sense of, is a CEO really contributing 200x as much to the company as Joe Lunchpail?) but not of an absolute cap.

-- Steve thinks that somethings are indeed best left up to the market, even with the absurdities that sometimes arise.

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Make that a ratio of lowest-wage to highest-wage per hour worked within a company and I'll sign on.

In other words, say the ratio is 25x -- then if the lowest-paid employee is on $10/hour, the CEO can earn no more than $250/hour, unless they up the wage of the lowest-paid.

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I think any cap on pay would have to be per hour worked.

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undeadbydawn.livejournal.com

why?

we already have a system where 'putting the hours in' gets you paid, even if you do nothing remotely useful during those hours.

I have literally been hit by a truck on the way to an emergency, life-saving call [as in I actually saved someone's life] and been paid exactly the same as I would for dropping by and drinking tea. I like to think the former was probably a more valuable use of my time. It actually ended up costing me, cos I had to get my bike repaired.

there's more to work than time served.

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part time workers.

or as they are called in the field of executive pay non-executive directors.

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I think policing maximum pay would be very difficult.

Share options would present a particular difficulty.

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0olong.livejournal.com

The culture of people in a position of power (specifically, in this instance, bargaining power) expecting to earn something close to the amount of money they make for a company is toxic, with a range of vastly negative side-effects, and ethically questionable at best.

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0olong.livejournal.com

To put it another way, it's not a question of 'a maximum amount that people are allowed to earn in a year' - what you mean is surely 'should there be a maximum amount that people are allowed to BE PAID in a year?'

There is a maximum amount that people can EARN, in the sense of doing enough work or having enough talent to be paid that sort of quantity.

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del-c.livejournal.com

There should never be a maximum amount, just an increasing percentage of the marginal pound taxed. If you're an annual billionaire, you can still get up in the morning looking forward to a 10% raise, it's just that 99 pennies of the last pound you get are taxed. But you *will* get that last penny, and probably for doing less work than I do for my last penny. And it adds up to another million pounds for you, even if 99 million does go into the public coffers.

A hard cap is so unnecessary, that it makes me wonder who's putting it around that that and unlimited compensation with low marginal top tax rates are the only two possibilities on the table.

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ninebelow.livejournal.com

Yep, exactly.

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bookzombie.livejournal.com

My problem with setting ceiling amounts is: who gets to decide? Trying to get an objective decision would be almost impossible. Though I do like the idea of fixing the relationship between the chief executives' pay and other employees...

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simont

who gets to decide? Trying to get an objective decision would be almost impossible.

Ha, yes! Anyone you asked would give a plausible argument for choosing to set the ceiling at £X, and it would just so happen that the maximum that that particular person could reasonably expect to earn in their life was £X-1...

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alitheapipkin.livejournal.com

This.

I love the idea of setting maximum pay but I don't see how it could work in practice, except for public servants. Banning company execs from paying themselves hundreds of times more than they pay their junior employees seems a much more practical idea that might also improve things for those on minimum pay.

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calum

I wouldnt set a maximum salary, but I would set a minimum tax level payable - regardless whether its from shares, income, capital gains, etc. If its your money to spend, pay tax on it.

No more tax avoidance - you earn a million quid a year, you damn well pay 40% tax on most of it.

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inamac.livejournal.com

I'm out of step on 1 because 'part' of 'some people's' is awfully vague. Which part? Whose? If an employer is doing his job he'll be selecting the most competent worker, and incentivising them with interesting/challenging work rather than money.

And where do football players stand?

I'm not in favour of blanket maximums because I know too many actors who've been assessed for taxes on high-earning years at times when they're out of work.

But it's all very difficult. *Flails*

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philmophlegm.livejournal.com

Dead easy.

The state has no business whatsoever interfering in contracts between private individuals and private companies. On the other hand I have much less objection to a cap on public sector pay. Oh, and tax rates should be as low as possible and as flat as possible.

But then I'm a liberal.

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chess

So private companies should be allowed to exploit undereducated employees by introducing unfair contract terms that they have no hope of understanding and enforcing them?

Should you be allowed to sell yourself into slavery? What about your children?

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drdoug.livejournal.com

The cases where it's genuinely sensible to base pay on performance are few and getting fewer as automation eats in to commodity-producing piecework. Certainly at the executive level it's a mug's game of cat-and-mouse around the principal-agent problem.

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doubtingmichael.livejournal.com

I voted no on the "maximum amount per year", because someone like J K Rowling seems to have earned every penny, by a very simple transaction (but let's tax that income, of course!). However, I also think that a lot of people who are very highly paid are only doing so because they work close to money and that makes it easier for them to get hold of it.

In all the discussions about CEO pay, nobody (on either side) seems to be saying "Well, what's happening is that they can get a lot of money, so they do. What's strange about that?" I'm not sure it's helpful to demonise that motive, and the many debaters on the left seem to be very keen to do that.

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del-c.livejournal.com

Debaters on the right seem keen to demonise the simple taking away of it in taxes. The thing about taxation is that it *doesn't* pass moral judgment on the tax payer. The argument against taxing rich people, by contrast, utterly depends on lionising the rich; they claim they "earned the money, it's theirs, and they should keep it".

What you call demonising is just the simple contradicting statement "no you didn't earn it, you just got it. And now we get it back". If you don't want demonisation of wealth, you have to abandon lionisation of wealth, and also abandon demonisation of tax.

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doubtingmichael.livejournal.com

To quote Bohr "I think we are closer on this point than you think."

Wanting the money back is not what I call demonising. I'm all for that, and taxes generally. "Demonising" is when somebody implies that real people wouldn't want that kind of money, and that the selfish wish for riches is an alien, strange impulse.

Part of the point of taxes, and society generally, is that they arrange things for the common good instead of a "devil take the hindmost" approach, but without denying the human nature that makes that kind of cooperation important.

And yes, people on the right demonise things too, and that's also bad. (In fact, it's worse, because they're ideologically wrong. In my opinion.)

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ajax-nz.livejournal.com

Use the national median income.(not average)
Base a tiered tax rate on multiples of that.

Means rich *ankers have a big incentive to make everyone else richer too.

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A way round the issue of lumpy pay for artistic or scientific output might be base income tax on life time average earnings.

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chess

That sounds very difficult to calculate...

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