Unintended Consequences

Unintended Consequences

I tend to believe that some government regulation is a good thing overall. Especially in today's economic situation, where fewer large companies dominate that landscape, and learning from the 2008 financial crisis, I believe there is value in the government setting reasonable guardrails.

Coming out of the Dodd-Frank Act is a rule on disclosing CEO pay that lists the ratio of the CEO's pay to the average workers'. The Wall Street Journal reported on this CEO pay ratio today, discussing some of the implications of various company structures.

For example, West Coast tech companies, with relatively fewer, relatively higher paid employees like software engineers, do much better than middle-American retailers with many lower paid retail employees. This is simple math.

When these numbers are posted, companies will be excoriated over the damaging ratios. This is done in the hopes that it will either hold CEO pay down or increase work pay. I predict neither will happen. Instead, companies will continue or accelerate their current path of outsourcing more and more work, especially low-wage work.

Many have reported on this phenomenon, but that shift of people like security guards, maintenance staff, administrative staff and others from a corporation's payroll to a subcontractor is one the largest issues of work pay disparity in the country day (IMHO).

If low-paid workers damage a company's reputation through government disclosure, it may incentive companies to continue to move people off their books. These workers, however, often have little recourse to management and are in high-change jobs when a company shifts contract from contractor company A to company B.

Unintended consequences, best intentions gone awry, whatever you want to call it, the move to publicly shame or punish CEOs will result in harm to the country's lowest paid and least stable workforce. This is often true. It may be more the result of the growing oligopoly of corporate titans, many of whom can create monopsonies in their local hiring markets. This is a case where the regulatory guardrail will steer folks right off the cliff.