Executive Pay

Apparently, it's up 50%.

As always, Chris Dillow has something interesting to say about this from a left-of-centre perspective.

What do I think as a Christian, and someone who leans left of centre (but not all that much to the left)? Is it immoral that folk get paid the marginal product? Nope, but then the question is whether they are being paid their marginal product, and that's something that Chris pushes at in his blog.

Your libertarian, right-leaning person (Christian or otherwise) will say that we shouldn't stand in the way of this: The market is determining the right level of remuneration for these individuals, yet is it? Is the price mechanism really at work here?

Basic economic theory says that as well as wages being determined by the marginal product of the worker, it also points to the existence of economic rents that can be exploited by either the principal (employer) or agent (employee) in any given wage situation - there is wage bargaining going on. Right-wingers of an extreme form would say that there exists no power without government, but executives certainly have some form of power to extract the kinds of rents they extract - i.e. the kind of pay they manage to get, which seems to be entirely independent of their performance (again see Chris's blog linked above).

Funnily enough though, I think the solution to the problem is to free markets a little bit more. From my limited understanding, the shareholding structures of big companies is skewed in favour of larger investors (which are usually institutional investors), and these large investors do not necessarily exert the kind of influence that might be hoped for. If instead legal structures were such that the voices of small investors were given more say, then we'd certainly see more shareholder activism, which might not be a bad thing in helping bring companies more in line with social marginal costs and benefits rather than just private marginal costs and benefits.