Fair Pay for Fat Cats

Too much is once again too much.

by Bruce Schimmel

Still, what made this newsworthy was the sheer scale of the numbers. With a 52 percent jump since 2007, Gutmann got a total of $1.28 million in fiscal year 2008. (A base of $825,000, the remainder is benefits and bonuses.)

Nice work, if you can get it. But in these tough times, the ethics of anyone getting paid that much tends to stimulate some inquiry.

So late last year, Gutmann beat back a backlash with a pledge that she and other Penn execs will get no increase in 2010 — at least in their base pay.

Big salaries do give rise to huge ethical issues — which political theorists like Gutmann know well. It's generally accepted that large income disparities undermine democracies. And so to be overpaid might well undercut Gutmann's professional goal "to advance core values of a democratic society."

Too much is once again too much. Even former Fed Chairman Alan Greenspan warned that America's widening income gap "is not the type of thing which a democratic society ... can really accept without addressing."

According to the Gini coefficient (a standard index to measure disparity), America's lopsided pay distribution places us not among democracies, but among dictatorships. Worldwide, Sweden is the most equitable, followed by democracies like Denmark, Germany and France.

In income equity, even Russia beats us. The U.S. income gap ranks us with the likes of Uganda, Nicaragua and Iran. So what is fair pay for fat cats in a democracy?

For guidance on pay fairness, we can turn, ironically, to J.P. Morgan. The legendary mogul declared that no CEO in his companies would earn more than 20 times that of his lowest-paid worker. This 20-1 ratio is also the recommendation of modern business guru Peter Drucker, and is often cited as a fair benchmark.

Applying the 20-to-1 rule to Gutmann's compensation is instructive. The lowest pay scale for a Penn worker is just above $10 an hour. With benefits, let's call it $25,000 a year. That means if Gutmann worked for robber baron J.P. Morgan, she'd come home with about $500,000.

And what's fascinating is that a half-million cap is what Obama's new "special master of compensation," Kenneth Feinberg, has prescribed for top brass at AIG, Citigroup, Bank of America, General Motors and Chrysler.

In fairness, of course, Gutmann's overgenerous paycheck pales when compared to the average take-home of the S&P's top 500 CEOs: $10.5 million. That's some 344 times the pay of a typical (not even the lowest-paid) American worker.

That's outrageous. And while any talk of income redistribution provokes cries of socialism and class warfare, the times are a-changing. It's easy to predict that over-earners will be paying much more in income taxes, and soon.

Meanwhile, for those who are currently suffering from an embarrassment of riches, may I suggest unburdening yourself right now by investing in an institution that promotes democracy through financial equity? My personal recommendation is The Reinvestment Fund (trfund.com).

(bruce@schimmel.com)