Tuesday, September 22, 2009

Executive salaries: when is high too high?

Since Barack Obama became US President amidst a global economic crisis, how private capitalist enterprise relates to public enterprise and the common good, as assumed in a liberal democracy, is again the focus of much debate across the globe. The bankruptcy of General Motors brought the issue of executive remuneration to the fore: how can you justify millions of salary expenses for executives of a firm that is bankrupt and is being bailed out by the taxpayer?

In a global economy, this is a global debate. In Switzerland, the Chief Executive of the UBS AG, one of the largest Swiss banks that was bailed out by the Swiss government with a more than US $ 42 billion injection, said that salary caps are not feasible as one would not know how high would be high enough. When asked if his million dollar bonus was too high, he said that it was maybe too low. This made the news as UBS announced to fire some 8 700 employees to save costs.

The CEO of Nestle, the largest global food processing company, weighed in the debate by declaring that if salary caps were legislated, he would move the company out of Switzerland.

In South Africa, private enterprise is largely save from such debates. After all, here, no big bailouts were necessary. However, the discussion turns around public enterprises or parastatals, and if their executives should receive similar pay and bonus as those in private industry.

Arguably, a developing state that has to be careful with its expenses and make sure that the money goes to those who need most urgently support. Executive salaries seem to be a good place to save. High salaries, however, are justified with the reasoning that in order to attract the best talent for the job, parastals have to compete with private industry.

Both these cases show a clear conflict between economic reasoning in a world with no boundaries and a sense of ethics and responsible thinking that is tied to place and people.

CEOs operate in a sphere of thinking devoid of boundaries and attachment, physical and ethical. All that counts is an economic logic that subjects any other considerations to the maximization of profits. However, democratic governance, based on the sovereignty of the people, tied to a community and the common good, requires ethical behaviour. It is only through ethics that the meaning of a community is maintained.

It speaks perhaps to the failure of the reproduction and education of a globalized, Westernized economic and political elite, that we are faced with this situation. As, some observers pointed out, was the extreme risk taking of the banks based on the institutional loss of memory about the perils of banking, so is the arrogance of those at the top of our economic system endangering the very foundations of our democracies.

Rethinking economic models alone will not do. Leaders of multinatinals need to rediscover their social responsibility, beyond marketing speak, or there will not much to be left to be lead.

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