Compensation & Benefits Review

Congress should allow a unique class of preferred shares whose dividends are tax-deductible as long as a significant majority of senior management compensation is in the form of these shares. Tax-deductible interest should be further limited to compel firms to issue these shares because a lower tax liability will increase firm value. Managers will be discouraged from making high-variance and often losing bets with other peoples’ money because they will have skin in the game. Their compensation will be directly tied to corporate performance rather than the volatility of the stock market, which is the case with common stock and options awards.

In recent years, student loan repayment programs have emerged as the hot new employee benefit. However, their growth has been restricted by their lack of favored tax status. On August 17, 2018, the Internal Revenue Service issued a private letter ruling approving a proposal to create such a program within a 401(k) plan. In a deft piece of reasoning, the private letter ruling provides relief from the so-called “contingent benefit prohibition.” This article examines student loan borrowing, the private letter ruling and its likely consequences and limitations.

In this article, we present some exploratory analysis of a common measure of income inequality in the United States. That measure is the Gini coefficient, and we explore how, and why, it has increased over the 50-year period in the United States from 1967 to 2017. Our hypothesis in doing so is that rising U.S. income inequality is due, at least in part, to growth in efforts by individuals, groups and even large companies in the United States to use government, with its power to compel, to bend the income distribution in their favor—an activity that public choice economists refer to as rent-seeking. When compared with some simple measures that proxy rent-seeking activity, such as the number of licensed lawyers and the number of registered political action committees, our analysis suggests that the U.S. Gini coefficient rises, a move that indicates increasing income inequality, over time with similar cycles in rent-seeking activity.

This article addresses new approaches to address a long-standing employment compensation problem—the gender pay gap. Existing approaches, including the Equal Pay Act and Title VII, are more than 50 years old, and have only been marginally successful in resolving this problem. A pay gap based on gender remains a problem today. New approaches include the potential passage of the Paycheck Fairness Act at the federal level and a variety of laws at the state level. Some states have passed pay equity laws that are more successful than the federal law due to the use of the comparable work concept. Additionally, some states have passed laws regulating the asking of salary history questions, as well as the use of non-compete and no-poaching agreements, all of which have a chilling effect on pay equity. The result of the combination of these actions is a probable reduction of the gender pay gap, although eliminating it remains a distant goal.

Ensuring compensation policies and programs are viewed by employees as equitable, competitive and appropriate enables an organization to make their value proposition attractive to the talent it needs to succeed. There is significant controversy today related to the wage and wealth gap, and wage inequality is widely viewed as unfair and unwarranted. Each compensation strategist must reconcile business needs with the needs of the workforce, and altering the manner in which available resources are allocated can work toward that reconciliation. Alternative approaches for doing so are presented.

Pay equity is one of the most increasingly complex, sensitive and visible people issues facing organizations today. Understanding how to diagnose, quantify and address pay gaps, as defined by equal pay for equal work, has never been more important or more challenging. Today’s business, regulatory, political, and social climates are combining to place unprecedented levels of scrutiny on what organizations are doing—or not doing—to ensure they are fostering an inclusive environment in which all employees have equal opportunity to thrive and develop.