Tags: income | gap | inequality | MIT

MIT Professor Kochan: Here's How to Reduce Income Inequality

By    |   Tuesday, 22 April 2014 12:54 PM

It's called pay-for-for performance and it's a solution to solving America's growing income inequality, asserts an MIT professor, in an opinion piece for Fortune magazine.

"We can't go back to the good old days," writes Thomas A. Kochan, a professor at the Massachusetts Institute of Technology's Sloan School of Management. "Today international competition, technological changes that value skilled workers, union weakness, and financialization of corporate practices are realities to be dealt with."

The solution, he says, is pay-for-performance, particularly the Scanlon plan outlined by Joe Scanlon, former Steelworkers Union leader and MIT instructor.

Editor's Note: Secret Wall Street Calendar Uses Strange ‘Crash Alert System,’ Gets 18.79% Annual Returns

In that plan all employees in the firm are included to the performance pay plan to encourage cooperation, not competition. Performance pay complements, doesn't replace base pay, and employees have input into creating and running the plan and continually working to improve productivity.

The plan must account for changing markets and technologies, and formulas for calculating those changes, and productivity and profits must be technically sound, transparent and trusted by all groups, says Kochan, author of "Restoring the American Dream: A Working Families' Agenda for America."

To help implement the Scanlon plan, new labor laws must give workers a voice in the plans. For instance, enterprise-wide work councils allow employees to give their input.

"Sharing ownership of the company with employees is another option," he says, citing Employee Stock Option Ownership Plans.

Internal promotions could give improve employee productivity and commitment. Workers displaced by new technologies should be retrained and moved into other jobs, he stresses.

"This approach both supports the workers affected and motivates others to continue to foster rather than resist productivity-enhancing technological change."

The biggest challenge is change accepted corporate norms on salary rations between CEOs and rank-and-file workers. Corporate boards must be pressured to how they pay CEOs.

"Giving workers seats on the board would surely help!" Kochan stresses.

The jump in executive compensation is often cited as a main cause of increasing inequality.

The median compensation of chief executives grew to $13.9 million in 2013, up 9 percent from 2012, according to an Equilar study for The New York Times. The 100 CEOs surveyed took up a total of $1.5 billion.

"In some ways, the corporate meritocrat has become a new class of aristocrat," states the Times.

"The current system of executive compensation, with its emphasis on performance, can theoretically constrain pay, but in practice it has not stopped companies from paying their top executives more and more."

Editor's Note: Secret Wall Street Calendar Uses Strange ‘Crash Alert System,’ Gets 18.79% Annual Returns

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It's called pay-for-for performance and it's a solution to solving America's growing income inequality, asserts an MIT professor, in an opinion piece for Fortune magazine.
income, gap, inequality, MIT
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2014-54-22
Tuesday, 22 April 2014 12:54 PM
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