Should there be a maximum salary a person can earn?
The level of wages is one of the most important questions raised by the employees. The salaries determine the income as well as purchasing power, and consequently, the level of the person’s life. Therefore, people are always interested in the higher wages. Their common issue is how to earn more money. Moreover, the question about the maximum salary is very actual and popular nowadays. It results in various opinions and considerations.
First, it is important to determine the types of the payment that the employees receive for the work provided. There is a particular category of wages, which the employers pay to their employees for the executed work per hour. It is also known as “time work”. The second type deals with the payment of an annual salary. It is determined by the contract for a certain number of hours that the employee needs to implement. Another type is the salary, which is paid partially for the executed amount of work. Other optional variants can be discussed and set between the employer and employee (Gov.UK.).
Thus, the types of payment, which should be applied, are determined by the specific of the executed job. However, the maximum level of the wage can be determined by the employee. There are different opinions concerning the highest salary. To be more precise, there is a dilemma whether the maximum level of salary should be settled.
Advantages of Maximum Wage Salary
The first opinion deals with the regulation of the state salaries that are paid to the state workers. Considering the fact that executives can set the level of governmental payment by themselves, it is necessary to fix the maximum wage in order not to apply the executive power for the personal interests. Moreover, in such a way, the misuse of state budget can be prevented.
Another problem that can be solved due to the fixed level of maximum wages is decreasing the difference between the rich and the poor in the society (Engler). According to the January report, the rich people were constantly increasing their income level per 60 percent in the last 20 years (Engler). Another statistic fact that stands for the settlement of maximum wages is that from 1930 to 1980 concerning the average salary for CEO, which amounted to 1 million dollars (Sutter). Further, from 1978 to 2012, it increased per more than 875% and was about $14.1 million (Sutter). In addition, it was counted that the total income of 100 billionaires would be more than enough to cover the international level of poverty (Engler). According to this statement, the scientists and economists emphasize the fact that the maximum salaries must be determined and limited. In such a way, the CEOs would be prevented from setting extremely high personal wages while the employees are neglected. The undivided profit would be shared between the employers and employees and, at the same time, the difference between the rich and the poor people would be decreased.
Another argument in favor of limiting salaries deals with avoiding the risks in the financial system. Earning high profits is directly leading the enterpriser to the hazardous consequences in the related business that causes high risks in the banking sphere. At the same time, the company’s productivity is also affected by the unlimited wages (New Internationalist Magazine).
Another reason for settling the maximum salary rate deals with psychological attitude of the people. People live in the related society and always compare themselves to others. The employees orient themselves to the level of their employers and intend to reach the similar conditions of life. As a consequence, they take loans and start living in debt. They consume more than they earn. Therefore, the critical economic situation is created, and the threat of a financial crisis may occur. However, the set maximum level of wages can prevent such psychological and economic situation (New Internationalist Magazine).
The New Internationalist Magazine determines another important factor, which is necessary to consider while judging the question in favor of maximum wages limits. The authors of the article “Should there be a maximum wage?” consider that the most important factors for the country is the level of crime, health conditions, and education. They emphasize the fact that if the employers are motivated to pay higher salaries to their employees, the overall level of life will increase among the middle and low class. People will be encouraged to find jobs and receive higher wages. They will not be obliged to execute any work in order to survive. At the same time, the workers getting more remuneration for the job will have an opportunity to be provided with high quality medicine and education in schools, colleges, and universities (New Internationalist Magazine).
Regardless of all the positive arguments and proves in favor of the fixed salary limits, the maximum wages strategy has many disadvantages related to the prevention of the maximum salary settlement. Thus, from another perspective, there are many negative facts connected with the maximum salary level. Moreover, the scientists emphasize the fact that it is useless to take the majority of the company’s profit that has been mainly earned due to the assets, knowledge, and skills of its owner. In addition, it is considered as not fair to share this income with the random accountants, secretaries, and cleaners. Such system can motivate the enterprisers to earn more and develop their companies due to the fact that they will not be able to obtain their personal benefit from their companies (Engler). Moreover, the successful enterprises are the main tax sources as well as industry developers for the state. Therefore, their rights have to be also protected by the government.
Another important fact that makes some of the scientists consider the settlement of salary limits is the taxes. Each country has different tax system, which the government lays on the salaries of the employees. Some of them compile the set percentage that does not depend on the amount of money received. Others are constantly changing in compliance with the salary rate, whereas the higher wages increase the percentage of tax. In any case, salary tax is a considerable governmental income that the state may not receive by limiting the wages.
One of the most important arguments against the set maximum level of wages is the reduction of motivation to those employees who are considered to be high-achievers (New Internationalist Magazine). Moreover, these are the people who are devoted to their work. They have intention to gain the most possible benefit for the organization and, at the same time, earn high personal remuneration for the work provided. These people are the most important participants who organize the working process of the related company. It is necessary to value and appreciate the afore-mentioned high-achievers due to the fact that they are ensuring considerable benefit of the company. In addition, these employees work efficiently as well as demonstrate a good example for other workers. In case the high-achievers have the salary limits, they would not be motivated as soon as they rich the highest level of their wages (New Internationalist Magazine). Financial impact and increased living level have always been the main motivators in the human resource development, and the set maximum wages will depreciate the whole theory (Becker).
It is worth noting that some scientists perceive critically the governmental policy of setting the maximum level of wages. Their opinion is based on the issue of democracy. They consider that such a change, connected with the limits of the personal earnings, will decrease the level of democracy in the related country. In such a way, the whole governmental policy can be treated as the one that does not respect the issue of democracy (Becker).
One of the authors who views the advantages and disadvantages of the set maximum wages is the representative of the CNN Company, John D. Sutter. He explains that it is not necessary to set the maximum wage level. This policy would not solve the problems of poverty, crime, and social differences. He emphasizes the fact that the afore-mentioned change would provide another opportunity for the CEOs to become millionaires. In addition, the level of earnings of a random worker would decrease to the certain extend. However, the author suggests developing and implementation of another policy. John D. Sutter proposes to raise the minimum level of salaries (Sutter). In such a way, the job would be more appreciated, and the workers would be more motivated to fulfill their duties. At the same time, the level of life and education will grow when the level of crime and poverty decreases.
The Scheme of Setting Maximum Wages
After viewing all the positive and negative aspects of setting maximum wages, it is important to study and analyze the real mechanism of implementing the corresponding policy, namely fixed wages rate. First, the related strategy was used by the US President Franklin Delano Roosevelt during the period of World War II (Hanley). In order to regulate the economy that faced a considerable pressure of war, he decided to set the limit on the salaries and wages in $25,000 per year after taxes (Hanley). Such a decision was reasoned by the fact that the majority of male middle class participated in the war as soldiers. Risking their lives in favor of the country, they were earning only $60 per month (Hanley). Therefore, limiting the maximum year salary to $25,000 was a contribution of the rich to the US economy (Hanley). Franklin Delano Roosevelt was absolutely right when he put the main emphasis on the famous economic paradigm that the prosperous middle class was one of the main bases for the well-being of the economy.
Nowadays, there are considerable debates regarding the necessity to fix the maximum wages and peculiarities of its mechanism. One of the schemes was proposed by Larry Hanley who is the representative of the Amalgamated Transport Workers Union (Engler). He suggested launching a “maximum wage” law that is following the strategy of determining the salary of the employer by the salary that is paid to its employees. For example, the corresponding salary of the company owner cannot exceed the average salary of its lowest-paid employer more than in 100 times. In such a way, the employer will be motivated to pay higher wages to its workers in order to receive higher personal benefit (Engler). Moreover, this is a good strategy to increase the life level of the society and decrease the percentage of poverty, which is a very important criterion for the governmental strategy.
Another example of maximum wage setting occurred in Switzerland. The Swiss considered changing the legislation in favor of setting the maximum wages ration 1:12 (Sutter). The scheme means that the executive can receive the salary, which does not exceed more that in 12 times the lowest payment of the company’s employee. The governmental policy and the payment scheme were named as 1:12 executive-to-worker pay ratio (Sutter).
It is beyond any doubt that the question of a maximum salary cannot be viewed separately from the external environment. While making the decision of setting the limit on the wages earned within the country, it is necessary to consider such important economic and political criteria as country development level, inflation rate, development intensity of the country, political strategy, level of poverty, and economic stability. For example, it is inefficient to set the wage limits in the countries with slow rate of the development and low level of the living standards. On the contrary, the states, where there is a considerable difference between the rich and the poor people or with the absence of middle class should set the maximum salaries that can be earned by the rich. In addition, such issues as economic and political criteria have to be considered while determining the exact level of the salary, which will be accepted as a maximum. For example, the rate of inflation has to be considered as well as the purchasing power of the currency.
Thus, reviewing the afore-mentioned facts, it is important to arrive at the conclusion about the main peculiarities of the question discussed. Thus, the dilemma is “Is it useful to set a maximum salary a person can earn?” Reviewing the corresponding issue, it is evident that there are absolutely different opinions, considerations, and arguments concerning the raised problem. However, there is an equal amount of arguments, which support or deny this notion.
The advantages of limiting maximum salary deal with many factors. The most important issues are the opportunity to solve the social problems, such as difference between the rich and the poor class of the society, absence of the middle class, risk of the economic collapse, high crime level as well as low level of education and medicine provided to the poor class. Moreover, there is a considerable problem with the great difference of payment to the random employees and CEOs. Sometimes, the salaries differ in more than 300 times. It causes psychological problem connected with the attitude of the employees to the work, level of life, and the consumption rate. At the same time, the workers start orienting to the CEOs in consumption, take loans, consume more than earn, and create a risk to the economy. These negative phenomenons in economic and social life can be solved due to the set limit on maximum salaries.
On the contrary, the research paper shows another point of view considering limiting of the maximum wages. Its main disadvantage is the decreased level of motivation of the employees and CEO who are encouraged to work more efficiently, because financial remuneration is their main motivator. In addition, such change in legislation system may cause the pressure and negative motivation to the high-achievers who are the main company leaders. They are not only contributing high working impact, but also showing good example to other employees. Moreover, decreasing maximum level of salaries will also decrease the taxes paid from the wages to the government. In addition, there is another opinion that considers maximum wages limitation to be a serious threat to the country and democracy of the society. However, the dilemma “Should there be a maximum salary a person can earn?” remains unsolved, and each country government as well as its citizens are obliged to consider all advantages and disadvantages before taking any decision regarding the maximum salary level.