Once our business leaders, labour movements and government see the benefits of salary-gap moderation, implementing it would be very easy, smooth and painless.
Step 1) Agreement
Government and business leaders agree to place a moratorium on increases to executive salaries within every company until the wage gap in each company reaches a certain ratio (agreed between business, labour and government).
Step 2) Inflation linked increases controlled by the Reserve Bank
Mandatory inflation linked salary increases for the lowest paid workers in each company would gradually bring the wage gap down, which will ensure that income inequality will start to shrink. Essencially this would mean the worker is not earning any more in real terms and the employer is not paying more.
Because the Reserve Bank controls the inflation rate, it could speed up inflation in order to bring about more rapid equalisation. Obviously there is the risk of hyper-inflation that needs to be taken into account, but if inflation is kept below 20%, the risk of hyper-inflation would be very low. With workers salaries tracking inflation, if inflation was kept at around 15%, the ratio of the gap between salaries would narrow by half every 5 years. For example a company with a salary gap ratio of 1 to 300 would reach a gap of 1 to 150 in 5 years, 1 to 75 within 10 years and 1 to 37,5 within 15 years. With inflation at 18%, a gap ratio of 1 to 300 would reach 1 to 150 within around 4 years, 1 to 75 within 8 years and 1 to 37,5 within 12 years.
Step 3)Tax incentives
Salary-gap moderation should be seen as an alternative to taxation as a means to distribute wealth. If companies and executives could choose between taxation or salary-gap moderation, most will probably choose salary moderation because of all its benefits to their companies, the economy, their community and ultimately their own lifestyles.
In order to decrease our poverty levels we need our lowest paid workers pay to increase faster than inflation, so tax incentives for companies with low wage ratios and penalties for those with high wage ratios could be used to speed up the process, as executives would be pressured to keep the ratios down to increase profit. Income tax incentives and penalties for executives could also be useful.
Executives will already have an incentive to increase worker salaries: They can only increase their own salaries once their workers salaries have reached the desired ratio compared to their own.
Step 4) Tweaking the ratios
The set ratio between the earnings of executives and workers need not be set in stone, and can be tweaked to balance the need for more equality with the need for more incentives for entrepreneurs and business leaders.
Once salary-gap moderation is implemented, set ratios between gross dividends to shareholders and gross wages (including management) within larger listed companies might be necessary to prevent shareholders of companies from using salary-gap moderation as an excuse to drive down wages across the board. These set ratios would ensure that shareholders get adequate returns on their investments, while workers also get their fair share of the profits from their labour. The Responsible Market Foundation intends to work with economists to calculate viable optimum ratios in this regard.
At the same time, employee share schemes could be used to ensure employees have a stake in the growth of businesses.
IMPLEMENTING SALARY GAP MODERATION
ENCOURAGING PRIVATE EMPLOYMENT AND EDUCATION
As an added incentive for job creation, any money spent on the employment of others within ones private capacity (outside of companies) and within a specific wage-gap ratio could be made tax deductible.
If it were tax deductible, many more households would hire nurses, tutors, domestic workers, gardeners, babysitters, builders etc. For example if you earned R1000 an hour, and it was tax deductible to hire someone’s services as long as you paid them at least (for example) 1/5th of your earning rate, you could hire a builder, tutor, domestic worker etc at R200 an hour rather than pay that money to the tax man. Think of how many quality jobs this would create!
Money spent on education could also be tax deductible. This would mean a lot more people would be able to pay for their children’s education and thus relieve the state of much of the burden. It would also stimulate the educational and tutor industries, and bolster the populations’ investment in education. No-one should be forced to pay tax instead of educating their kids properly.