All or nothing?

The Globe and Mail reported recently that former Shoppers Drug Mart CEO Glenn Murphy has been given $32 million in stock options and $4 million in non-compete fees as a going-away present. He apparently received over $2.7 million in compensation last year, including a $1.5 million bonus, and has an additional $18 million in unexercised stock options.

Needless to say, the feedback on the article's comment page is mixed. Some people are claiming that large corporations are bloodsucking capitalists, and that top executives are driven by greed. Look at what CEOs are paid, compared to what employees such as Shoppers cashiers are paid - is this fair, or reasonable?

Others point out that CEOs work very hard, sacrificing their personal lives, in order to maximize shareholder value; since they are delivering this value, why should they not be justly compensated?

This all got me thinking (which I try to do at least once a week, whether I need it or not):

• Wouldn't it be better for a company to hire several talented people and pay them $750,000 a year than to hire one very smart, driven person and pay him or her $10 million? I can't help but think that more brains attacking a problem leads to better results. And these people could all have lives outside of work as well. (When will a hard-working CEO find time to enjoy the fruits of his or her labours?)
  
  
• You have to wonder: how much of many companies' improved profitability is from attracting more customers, and how much is from trimming costs?
  
  When a firm increases profitability by slashing costs, this doesn't benefit the economy as a whole. The firm is healthier, but its employees and suppliers are equivalently less healthy. I can't help but think that this is like transferring water from one bowl to another.

I believe that the bottom line is this: businesses are not inherently evil or greedy, but the interests of shareholders and the interests of employees are naturally in conflict. Every dollar earned by a shareholder is a dollar that doesn't go to employee compensation, and vice versa.

And investors always have an advantage over workers: investors can choose to withhold investment, or move it elsewhere, if conditions are not favourable. Workers cannot choose to withhold their services (unless they are lucky enough to have savings), as everybody has to eat and pay for clothing and shelter. Public policies that do not reflect this fact are either naive or self-serving.

I also believe that a totally unregulated economy leads to a world in which a few people make a lot of money and virtually everybody else struggles to get by. Is this the world we want to live in, or the world we want the next generation to live in? Such a world is not sustainable, as eventually the vast numbers of poor would rise up against the comparatively few rich. (In countries where the divide between rich and poor is huge, the rich are often virtual prisoners in their own homes, as they can't go anywhere without fear of being kidnapped or robbed.)

For these reasons, government needs to establish ground rules to ensure that ordinary, hard-working people have a hope of leading lives of quality and dignity. This might sound like rabid socialism, except that we already have some of these rules in place today: for instance, not even the most vigorous defender of the free market is advocating a return to child labour or the elimination of health and safety regulations.

But one of the tragedies of our time is that, thanks to modern technologies, businesses can be more mobile than they used to be. This means that, if one country imposes too many regulations, businesses can just relocate elsewhere. (And they often have no choice: if a business does not relocate, it will be undercut by one that does.) This is a viable option because, in many poor countries, working in a low-wage sweatshop is better than the alternative (starvation). I'm not sure how this is going to ever change, at least in my lifetime.