Given this is an election year, I thought it was time to share an essay from my book The Minimum You Need to Know About the Phallus of Agile. The Hundred Fold Rule has many names. Candidates that really wants to win will make this simple thing the major plank in their platform. Unions will only have to fight over working conditions and health benefits because wages will be taken care of for them.

Featured image courtesy of: Photo 6000521 © Bright – Dreamstime.com

History

Income inequality has become a real problem in America and indeed many parts of the civilized world. Various think tanks and elected officials have proposed various bandages be placed on a patient bleeding from the jugular but, when one takes the time to analyze them they do not solve the problem, simply provide more of the same which did not work before.

Before you discount that previous paragraph consider the history of minimum wage in America. First instituted in 1938 it has since been raised 22 times and now there is a movement to raise it again, this time to $15/hr or more. We have had some propose a Universal Basic Income and a few countries have experimented with it. The flaw here is that taxes on the wealthy have to be massively high and they will spend all of that money fighting such a law rather than paying it in taxes. Some countries have experimented with imposing a maximum wage on everyone. This has met with disastrous results because there no longer is a ladder to climb.

Affordable Housing Legacy

Many people try to focus on one single pain point for those at the bottom rung. For many years Americans have heard about “Affordable Housing” and we even have the government agency known as HUD. (U.S. Department of Housing and Urban Development) To understand how that turns out one only need read up on Cabrini-Green.

Reality sets in when one tries to tackle a small piece of the problem. This particular reality is that nobody wants to live in affordable housing, they want to live somewhere nice (luxury housing) with amenities at a price they can afford, not a high rise box with criminals and drug addicts all around them. Affordable housing is always a low quality home with thin walls and plastic fixtures in the bathroom. If you want to know how poorly those dwellings are made in large cities rent the original Candyman movie about a legend from Cabrini-Green.

I’m not choosing to pick on Chicago, I’m from Illinois and am more familiar with house this particular part of the problem worked out. You can visit the Wikipedia page and search for the word “demolished.” On the whole, humans don’t deal well with being warehoused. Marina City in Chicago was completed 1964-1968 and it hasn’t been demolished, why? The bulk of the people living there have jobs. If they are home on the weekend it is just to relax. They aren’t in the building 24×7 because they have no money to do anything else. When you own a place you take better care of it because one day you might want to sell it.

Hundred Fold Rule

The solution, which will never be implemented, is what I call “The Ethics in Income Act”. Others will refer to it as “The Hundred Fold Rule”. You might view it as “Trickle Down With a Chainsaw”. Trickle down economics work . . . only if you have a flow control valve at the top forcing the sprinkler effect.

Unlike previous maximum income attempts in other parts of the world, this act doesn’t cap the income of ordinary people. It simply caps the income the highest paid people can earn by tying it to what the lowest paid make. They personally have to raise the bottom run before they can climb a higher rung themselves.

Implementation

It must be implemented without allowing for any grandfathered exceptions.

  • No officer, board member or management consultant of any publicly traded company is allowed to earn more than 100 times the lowest paid employee or contractor working for any division of their corporation.
  • The SEC will create a document which each corporation must file annually listing those companies they have contracted with.
  • The IRS will simply issue the person who was overpaid a bill for the overpaid amount. If they pay it, nothing happens. If they fight it and lose they serve a minimum of 5 months in federal prison. For a second offense not only does the person pay it but, each member of the board of directors. For a third offense it is a mandatory 3 years and they all have to pay.
  • All fines collected go directly to paying down America’s debt. Congress cannot touch, redirect, or in any other way divert the funds.

Limited Number of Companies

Sounds crass, sounds harsh but, it actually does solve all of the problems. You know people are going to try and cash stock options without reporting them and get caught. After the IRS starts collecting $20mill here and $80mill there, the deficit will start coming down. This law is fair and just. It only affects those corporations who wish to stick their hands into that never ending piggy bank known as the stock market.

In the wake of Enron, MCI, Tyco, Health South and far too many others to list here, it is apparent that corporations cannot self regulate. The mantra handed down from upon high whenever increases in minimum wage or health insurance come about is that they are “trying to run a business”. This law ensures you actually run the business rather than continue to rape it.

Off-shoring Lowers Executive Pay

Corporations off-shoring jobs to countries where people make $10/day is no longer a problem. Why? Because it total compensation to $1,000/day and you know they aren’t going to take that. Want to be a major retailer that contracts with cleaning firms using illegal aliens who get paid less than minimum wage? That’s fine. You get paid no more than 100 times what they do and that total includes all of your stock options as well as other benefits like golf club memberships and rides on corporate jets.

So, what happens with this law? Well, for starters, that box of corn flakes you pay $5.25 for which has about $0.04 of corn in it will probably start selling for $3.25. Nice but, if you don’t eat corn flakes it doesn’t do you much good.

Greed is a Tool

You have to remember the immortal phrase “greed is good”. In this case “greed is a tool”. Almost all of those shady dealings and accounting problems got started because of people wanting to manipulate the stock price and thus, the amount of money they made from stocks and stock options. When your income is capped, there isn’t much incentive to do that.

At most large corporations, the people who are paid the least tend to empty the trash and clean the bathrooms. Sometimes they work in the cafeteria. They usually make less than $20K. I don’t know where the Earned Income Credit kicks in but, I assume it is somewhere between the federally declared poverty line and that number. As employees for publicly traded companies they will suddenly find themselves making $50K. Not because anything changed about their job but, upper management will want to pay itself at least $5M and the only way they can do that is if the lowest paid person anywhere on the planet working for the company is making $50K.

That Deficit Problem

Remember that deficit problem? Under the Hundred Fold Rule, a person who is now making $50K instead of pulling down enough money to qualify for Earned Income Credit and other government benefits will suddenly start paying taxes instead of getting a check at the end of the year.

What about that minimum wage thing you ask? Well, I have lived in areas where I got to watch this minimum wage thing happen. When I was young the minimum wage was around $3.50/hr. I know, because I earned it at one point. When I went away to college the minimum wage was still that but, the area I was in had gas stations and fast food restaurants paying between $6.50 and $7.00/hr. Why? Because the corporate jobs in the area all paid at least $6.00/hr. Since they couldn’t give prestige they had to give cash.

By invoking this rule, the same thing will happen without raising minimum wage. After a couple of years, minimum wage will just simply be raised to whatever is currently being paid as an afterthought to help those areas where no business is part of a publicly traded corporation.

Total Compensation – Not Just Salary

Remember, the Hundred Fold Rule is based on total cash + non-cash compensation. Limited to 100 times the lowest paid person working for any division or contracting firm. This means the wages will increase even out at that little grain elevator in Po-Dunk USA because it happens to be owned by some division of a multi-national publicly traded Ag-based company.

So, here we are. With total compensation capped for the haloed few, there is suddenly a lot of cash laying around. Greed won’t let them keep their hands off it. Some of it will go out to shareholders as dividends. Some of it will be eaten because it is cash on hand which can’t be called anything other than profit, say hello to the tax collector.

Cash Will Burn Their Hands

Ah, the rest of it. That cash will burn in their hands. They control the cap because they control what the lowest paid person makes. That means the wealth will be distributed more equitably across the employees, shareholders and the business itself. The bottom end will pay more in taxes because they moved up in tax brackets or entered them for the first time.

Accounting fraud will now only happen to bankers when a failing company is trying to secure more credit. Since the bankers are professionals, they should know how to look for that problem.

This whole visa worker/off-shoring thing will suddenly have a very nasty taste indeed. If that developer is only pulling down $12K/yr, the haloed few have capped themselves at $1.2M. As an analyst, I have to believe the haloed few aren’t going to tolerate that for very long. High paying jobs will start moving back to America and they won’t get filled by $60K/yr H1-B workers. In 2018 Jamie Dimon got a raise to $31 million so how long do you think he can make ends meet on a pathetic $6 million/yr?

Not an Arbitrary Cap

Notice that the haloed few aren’t arbitrarily capped by the Hundred Fold Rule. They can still pull down $30M per year. They just have to ensure the lowest paid person working anywhere for the company is pulling down $300K.

Before you write this entire journey off as a mad ramble brought on by too much caffeine and too little sleep, take a good look at a company known as Lincoln Electric. Some years ago “60 Minutes” did a report on that company. The head of the company made less than some of the people working on the assembly line making the welders and other products. The employees actually knew what his salary was and some of them had a contest about who could put in enough hours to beat it. Not to mention, the quality of their products has been phenomenal for years.

Solve the Whole Problem

As I have said, developing the skill to solve the whole problem changes your way of life. You start seeing things like this and the connection between them when it comes to solving them. Your friends will call you crazy . . . until they’ve had a year or two to digest what you said.

The maximum income philosophy isn’t a horrible idea, it has just been horribly applied. Generally this had to do with big corporations wanting to exploit workers. If you simply apply the maximum income idea to the top of publicly traded corporations without a fixed cap, it works. What you cap is the distance between them and the bottom so most everyone wins.

Hundred Fold Rule Summary

I’ve written about this problem many times over the years. Each election cycle some pollster gets a candidate to scream “Tax the Rich” because it polls well, it’s just not a plan. The rich will always have a Panama Papers company to hide their wealth. We can easily find what their corporations pay them though because that’s required to be in the SEC filings. The Hundred Fold Rule grabs the low hanging fruit to make lives better for the bottom of the labor force and lowers the national debt by virtue of them now earning enough to actually pay taxes.