Pursuing more fairness
The disclosure of directors’ compensations has a positive side. In the long run, it will help raise transparency in the way companies run their businesses. The requirement will help equity and bond investors make better assessments of companies - and if the top people at those companies are worth the money they earn.
But more needs to be done. Society must reach a consensus on what kind of levels of compensation should be given to corporate executives. Each company should come up with inside guidelines based on a social consensus. Large Japanese companies like Toyota limit the annual salaries of their chief executives to within 20 times the average employee’s salary. We may not agree that such a multiple is reasonable for Korean companies, but it is only right that executive compensation should be linked to the pay given to ordinary employees. A company that performs well in a year should reward both its executives and its rank-and-file employees extra that year.
If used properly, the disclosure rule will contribute to evening out wealth and income discrepancies. Democracy and the capitalist free market system have made great strides over the last century around the world. Human rights have also improved greatly. But that progress came at the cost of an widening gap in wealth. The rich got richer. The divide between the wealthy and poor keep yawning wider around the globe. The richest 10 percent of the world population is estimated to account for 86 percent of global wealth. Poverty is spreading even among an abundance of wealth. According to the Bank of Korea, households with spending exceeding their income account for 23.8 percent. Total household debt exceeded 1,000 trillion won ($953.9 billion) last year from a mere 200 trillion won in 1997.
Equality, alas, is not a human right. People are born not only with different amounts of wealth, but also with different capabilities and talents. If the state does not help iron out inequalities in the environment and society that cannot be overcome by individual endeavors alone, wealth discrepancies will only go on widening.
Reducing wealth disparities requires cooperation from the entire society. The elite and privileged class should offer more generosity and sharing to compensate for the privileges of their backgrounds. If not, the 99 percent majority - the have-nots - will one day stand up and strike down the 1 percent.
A leadership role is essential. In the 1950s, U.S. President Dwight Eisenhower kept the marginal tax rate for top earners above 90 percent. It was easier for a Republican president to enforce a tax on the rich. Liberal President Roh Moo-hyun aspired to narrow Korea’s wealth gap, but he faced strong resistance from conservatives and only earned resentment. A conservative government is in a better position to seek the cooperation of the well-off and middle-income population to share the burden of easing polarization.
In his celebrated book “Theory of Justice,” Harvard University Professor John Rawls said justice can be upheld when social and economic benefits go to the least-advantaged member of a society. According to his argument, if the worst-off is guaranteed a fair deal, naturally occurring inequalities such as inborn talents can be compensated for. To apply his theory, we should first build a stronger social safety net for the economically-disadvantaged instead of carrying out universal welfare benefits. A society could be deemed more fair and just when people do not commit suicide because they are deprived of the basic means of living. That’s preferable to lowering university tuition fees and offering free school meals and basic pensions for all seniors.
The income gap is only the tip of the iceberg when it comes to social inequalities. We should use wisdom to come up with ways to enlarge the pie for the entire society to deliver bigger slices for individual members. Politicians, companies and individuals should all participate in the debate to create a growing and sustainable economy.
Translation by the Korea JoongAng Daily staff.
JoongAng Ilbo, April 8, Page B11
*The author is the chairman of Shinsegae Corp.
By Koo Hak-su