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A Level Economics Synoptic Essay Guide: Executive Pay Caps

okay welcome back we’re going to take a look at another question of the topical issue executive pay caps and think about some other possible micro and macro effects of introducing sort of a maximum pay for senior executives in nuclear companies this is highly topical some investment funds and pension funds are now in favor of tighter reforms or tighter controls of executive pay so what installs one of Britain’s leading highest-paid business people and even though the pressures from history shareholders to rein in his pain and the issue of exactly expanded and stretched as far as education here is a vote at the HCL and will come first a teacher conference to curb the pay of so-called fat cap Academy chief executives so this is clearly a highly topical issue here’s our question evaluates the micro and macro effects of a policy at capstan level of excessive pay well first of all we have to define what we mean by pay I suppose in collective pain total refers to the overall enumeration of the overall pay that flows to executives working for businesses CEOs chief analyst et cetera those earnings will include the basic salary but also perhaps bonuses and other rewards such as shell persons the level of exactly pay has become a big issue in the UK and other countries particular in the States the median CEO pay in the UK let’s the middle and middle Lang king of Pei 2015 was four million pounds a year that’s over thousand pounds an hour and median pay for footsie 100 zero is that’s for leading 100 companies by market capitalization he’s over one hundred and forty times after the national average pay in the UK the labour party ahead of the election proposing a twenty to one limit on the gap between the lowest in hired pace workers for companies that are given government contracts so this question is it a good opportunity to analyze and evaluate some of the effects that might come from like a statutory limit or cap on executive pay so in the essay in the 25 Markey looking to build up to four analysis points four key separate ka points evaluate each when you can and use diagrams of you if you have an opportunity and then come to a final reason and conclusion our focus is to build two micro points first and door two macro points so here’s my first in my grade point a cap on executive pay might lead to a brain during effect as top executives leave the labor market in search of higher paying other countries or focusing on some labor supply affects the micro impact bit of analysis then if Awards CA are limited then eclectus may decide to take jobs or companies in other nations this will create a scarcity of talented leaders and might lead to a loss of dynamic efficiency in the long run well then you evaluate the point challenged and criticized appoint a counter-argument is that’s a nice ability first used by their counter-argument is a compressor folks instead more on nurturing upcoming talent in their own businesses as well as just seeking to outbid others for top talent so instead of paying their CEOs enormous sums spend more time and energy and resources nurturing their talent within businesses this is the argument that lock star CEOs are largely a myth and that most innovation most innovation of the business comes from within the business rather than from the top a second my career point could be that high executive pay is an example of the labor market failure always good to bring some market failure to the discussion partly because we have excreting of pay award by shareholders so some printable asian problems can be brought into the discussion and also huge managerial power and businesses many ceos have you know they sit on the numeration committees and there and they can set their own pay and substance and some circumstances bill the analysis capping executive pay will help to bring more equity into the labor market more fairness if you like and might improve productivity the open here is that there’s a big gap between top and bottom pay within that can harm performance can harm productivity by building resentment well the counter I want the critique the evaluation point is that high rewards or executives are needed an incentive for people to work hard and build careers and the other oven is the pay of CEOs can be linked more closely to the long term performance of the business so linkings here pay for the output to corporate profitability market share for example another metrics including research and development innovation performance in other words you can link the pay of CEOs to actual performance more strongly so this micro section was thinking about the labor market and thinking about market failure to my career points macro side where you’re going to trying to build arguments so one Mackley from an effective capping pay might be to reduce foreign investment in the UK because firms find the UK perhaps less attractive to do business and the government runs a high executive pay is a price worth paying or having some of the more successful transnational corporations based in the UK but investing here creating jobs in the UK and then ultimately contributing to the exports of goods and services so the other ones that are macula performance is better for having multinational corporations based in the UK producing here even if that means the senior executives are paid vast amounts counter argument evaluation point is that foreign investment depends on many factors not just taxes on the income of executives and actually these days many multinational corporations are particularly aware of the wider stakeholder effects of a big pay gap for example people are relatively low paid living organizations that may suffer health problems and stress and things and often people with lower wages at the bottom of the pay scale and businesses they take more time off work with ultimately damages productivity and they often have to resort to the expensive debt to fund our consumer spending so they’re challenging about challenging the idea that cap is going to limit investment into the UK second macro point is that argument that the world is in the exactly pay cap is just funding ground offense studies have found that persistently high income inequality can damage economic growth so this is a case for cap and then drawing some businesses several businesses John Lewis successfully used share illicit schemes that further workforce to spread the profits more widely wider dispersion of profit particularly to people with a high propensity to consume sustains more consumption in the economy and therefore sustains more aggregate to bond so there is good economic growth down a pay cap counter-arguments evaluation point a lot depends on where a pay cap might be set so if we go back thirty years the average pay mcl is about forty five times the median wage so we went back to forty five times and where it is now and in 44 times actually enforcing the cap would be really difficult all kinds of incentives for people to try and avoid the cap tax advisers would find ways around it so you can make a case of saying a pay cap might be almost impossible to enforce and certainly quite costly to do if if tried so trying to build some micro and some macrocytic effects here and evaluate each in two very important to come to a final reason comment my argument would be that executive pay has certainly gone up it’s the average footsie 100 boss is not necessarily hens and thirty times more productive than their workers so if pay reflects marginal revenue productivity exactly pay is probably too high and always super high pay justified by enormous differences in corporate profits however top earners including CEO is pay a very high percentage of the total income tax that comes into the government so if in for sap a cap might actually reduce total tax revenues and make make the government worse off I think another question such as an existing pay cap a maximum pay policy it’s quite important in the evaluations somewhere the answer to talk about all motives alternatives always create good evaluation asses so for example instead of just capping pay perhaps we resort to increasing the top rate of income tax top modulated income tax on CEO pay our bonuses we think try and improve transparency by introducing legislation for example to to require companies to publish their pay ratios when you should have paid top to the bottom or top to the median wage the other aspect of course is to link government spending lots of contracts for building motorways for building hospitals or what have you contacting health services maybe only award government spending contracts to businesses that have signed up to some form of equitable pay limit for their senior x-axis that might be another alternative but alternatives do really help the evaluation on these 25 mark questions so though a topical issue lots to write about I’m sure you can find some labor market diagrams or maybe some aggregate demand supply diagrams to to build into your answer to get some really good marks on this question