Could Performance-Based Pay Be the Answer to Lagging Wages?

Sep 19, 2016
by Michael Schuman

A striking 5.2% rise in U.S. household income last year, the largest increase since the last recession, is a rare bit of good news for the beleaguered American middle class. Still, we shouldn’t get too excited. That one-year improvement can’t compensate for the decades of near stagnation in middle-class welfare. The Federal Reserve figures that the average income of the bottom 95% of U.S. households grew by less than 10%, in real terms, between 1989 and 2013.

There’s no shortage of suggestions for how to address the problem, from adjusting tax rates to hiking the minimum wage to tearing up trade agreements. One possible solution that hasn’t been discussed much derives from a very capitalist concept: performance-based pay.

The U.S. is an overwhelmingly private economy, and the government can only do so much to relieve inequality. That means the shareholders and CEOs of corporate America are ultimately responsible for strengthening the middle class. Yet in recent years, we’ve witnessed just the opposite. As capitalists binge on gargantuan bonuses and lavish share buybacks, they’ve been treating the employees who slave away for them as little more than costs to be controlled, leaving the average worker with crumbs.

Somehow the seemingly irreconcilable differences between capital and labor have to be reconciled. Few principles are more central to the American free-enterprise system than the right of hard-working people to reap the fruits of their labor. By applying this ideal on a much wider scale we can start to address the yawning income gap in a business-friendly way by aligning the interests of shareholders, management and workers.

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