There has been a great deal of information about the average wage of a Wal-Mart employee. Let’s leave numbers out of this for a minute and discuss the basics.

The Wal-Mart tax burden

Recent research has revealed that Wal-Mart wages are so low that having a local store puts a tax burden on the community in the form of government sponsored welfare for those employees. The average wage is so far below “livable” that tax payers have to compensate for it. This should never be allowed.

What is a livable wage?

In my state of Vermont there is a chart breaking it down. Again, the specific numbers don’t matter much right now. Just realize there is a line that is considered to be enough to have a comfortable life. How this is calculated could be debated, let’s just agree that there is an amount that would allow people to live comfortably in a given geographic region.

Wal-Mart can afford to pay livable wages

It has made so much money that paying their workers significantly more wouldn’t immediately eliminate their profits. In fact, some estimates have shown that it could be passed on to the consumer and not effect the profits at all.

Yet another gross statistic

CEO’s of companies like Wal-Mart can make hundreds of times their average employees salary. That’s their average, not minimum. Wal-Mart may be an outlier as there are other more responsible companies. Some already pay a livable wage (or close to it) on average. Costco is mentioned as one of the best large chain stores with a higher average wage and lower CEO compensation.

So it’s an economic problem?

It is simply a matter of shifting some of the money into the right hands. There is a huge disparity (this link is amazing, you should check it out) between the rich and the poor. This needs to change. Since the rich aren’t going to stand on corners and hand their money to the poor (nor should they), it needs to happen differently.

What law can fix this?

The idea is simple: Create a law that puts a cap on large companies CEO and Top level executive officers (any highly paid employee) total compensation (read: including bonuses, stock and everything else). The cap is based on a multiple of the average wage within the company including all subsidiaries, part-time and contract workers. As the company average wage increases, so does the CEO cap until the company crosses the livable wage threshold. One more thing, the company must be profitable or the cap returns.

Now to the numbers

If the average wage of a company was $20,000 and livable wage was considered to be $40,000, then the executives would be capped at (arbitrarily) 50 times the average wage. As the average wage surpasses livable wage, the cap is eliminated. Here are several examples:

  1. CEO pay cap for $20,000 avg wage X 50 = $1,000,000. An enormous pay cut for the offending companies. (Wal-Mart CEO $19 million)
  2. CEO pay cap for $30,000 avg wage X 50 = $1,500,000.
  3. CEO pay cap for $40,000 avg wage X 50 = $2,000,000.
  4. CEO pay cap for $50,000 avg wage = no cap, the sky is the limit if the company is showing profit.

What’s the point?

To me, the best laws encourage good behavior. Simply raising minimum wage doesn’t really address the problem and it can create havoc for smaller businesses. Large successful companies should not be able to horde billions at the cost of their workers and community tax payers. It should be noted that many companies will be able to easily avoid this kind of cap. CEO’s should be incredibly motivated to do so to keep their outrageous top 1% of the wealth salaries.

This kind of law has other great benefits: It injects money into the economy and into the government via wage taxes. People who make more spend more and pay more taxes. And it could help eliminate the welfare burden freeing tax money for important things.

What about small businesses?

The effect on small businesses is hard to estimate. If the minimum wage were simply raised, they would be in an even tougher place because all employers everywhere would be paying a livable wage. Small businesses offer other benefits like being local, friendly, a more dedicated consumer… etc. This isn’t requiring the businesses to pay a livable wage, just encouraging it. It’s certainly a much better option for them.

What do you think?