Peter Drucker, founder of management science and top business consultant from the 1940′s through the 1970′s, was appalled by the growing disparity of compensation in corporations during the 1980′s.
Drucker had long advocated for corporations and was clearly pro-business. Part of being pro-corporation and pro-business to Drucker meant recognizing the important role — and impact — that the corporation has on society by virtue of the time its employees spent each day at the company, the relationships at the company, the sense of identity and self-worth and societal worth from the company, physical and financial presence in the neighborhood, and organizing influence and curricula preferences from schools. All of this was jeopardized by the exploding gap of compensation, access, priorities, values, identity, worth, and other impact on the people of the very society reflected by the company onto the society at large.
Even Henry Ford, during the 1920′s, recognized that if he made thousands of cars per day with his invention of the assembly line, then he had to have thousands of car buyers per day. But very few people could afford to buy cars and few had any need for one even if they saved up the money. Most people worked six or seven day per week for twelve to fifteen hours a day, and they lived by the job site so they walked or took a trolley. His mass production needed mass consumers, but the masses were low paid, overworked, and completely local. So Henry Ford, who controlled nearly one-seventh of the entire economy at that time, started the policy of a dollar-per-day and five-days-per-week for all of his employees and those of the companies he controlled through his purchases and investments.
Peter Drucker suggested that the highest compensated person in the company should not get any more than twenty times that of the lowest compensated person in the company: The 20-1 solution.
Drucker reasoned that the 20-1 solution would require corporations to ensure a vibrant middle class and an informed, satisfied voter base. He also believed that anything a person could reasonably want to personally own should be affordable at a compensation 20 times more that the other people, because who else could pay more? So that also helped to keep demand-induced inflation in check so we didn’t have unnecessary inflationary bubbles and helped keep most luxuries within reach of most people so we would have mass markets for new technology products.
It may just be the right thing to do.
The President and Congress should require that any company which has a contract with the Federal government, and all of its subcontractors, and any company which takes any tax incentives must meet the 20-1 solution. The Federal Reserve should require that any banking institution which borrows from its reserves, the open window, overnight market and other interaction benefits from the Fed must meet the 20-1 solution. State governments should do so as well. That should cover most big companies, and that’s a start.
Can’t force it on every company, but we can on every company which does business with We the People.
And, it just might be the right thing to do to keep us one nation, set a good example to the world and our next generation. Money should not be the way driven people keep score.