Executive Compensation in Iceland

The Icelandic press is full of anguished commentary on what they call Super-Salaries or excessive executive compensation. The commentators are primarily of the political variety i.e. members of parliament, and the comments are for the most part a combination of economic illiteracy, envy, and naked political partisanship. The consensus that is clearly appearing is that compensation at these levels is wrong and that it is up to politicians to do something about it.

The reasons why excessive (i.e. CEO’s receiving up to 200 times the income of their lowest paid employees) compensation is considered wrong mostly fall into two categories. The first one is the eternal obsession of lefties namely equality. Iceland has traditionally not had very large companies and therefore, the only people that earned serious money where successful entrepreneurs. Now a number of companies and in particular the four major Icelandic banks have become of an size that makes them serious international players, with pay scales and options similar to their international competitors. Senior managers and specialist earning big salaries is, therefore, a new development that apparently is also very undesirable as this is viewed as creating a small cohort of winners an a large mob of losers. The second reason most often give is that this development is somehow not in sync with Icelandic society and what are supposedly its egalitarian values. This is often rather comically referred to as being incompatible with “Íslenskur Veruleiki” or literally the Icelandic State of Being. So bottom line is high salaries are undesirable if not immoral because they are a source of inequality.

Now having decided that the current compensation levels at the biggest Icelandic firms are excessive it is not hard for meddling politicians to take the next mental leap and decide it is up to them to fix the problem. The most popular solution is naturally the lefty’s solution to all problems namely higher taxes. There is talk of very high taxes i.e. over 50%, on income over a certain level and to categorise some capital gains as normal income (this would catch many of the option grants) and thus tax them at 36% rather than the 10% applied to capital gains. These politico’s, or at least some of them, however, understand that capital is flighty and these top earners employ advisors that are much better than anything the government can afford. Thus, even the Greens are looking for alternative ways of stemming the tide of high compensation. In today’s papers they seem to have hit upon the idea that maybe the principal role of the country’s pension system should not be to manage their assets for the benefit of its members but to police the morality of the country’s business. Roughly, pension funds should vote against excessive compensation and refuse to support companies that don’t fall into line. There is naturally no guidance as to who gets to decide what is excessive but never mind.

I have a much simpler solution to propose. Why not just run all of these high earners out of the country through whatever means necessary. A combination of restrictive legislation regarding compensation and high taxes should do the trick. If not there are always ways in which the companies themselves can be squeezed until they move their HQ’s and high earners somewhere else. This will bring equality right into line as the numerator (salaries) will collapse but the denominator (number of people earning salaries) will hardly change thus the average and range of salaries will be brought right down. Iceland’s Gini coefficient will also come right down with the added benefit that Icelandic lefties will be able to hold their heads high in lefty jamborees. Furthermore, this will ensure a collapse in real estate values thus, removing another source of inequality between real estate haves and have nots!