Peter Druckers most controversial work was on compensation schemes, in which he said that senior management should not be compensated more than twenty times the lowest paid employees. What is the Austrian point of view for compensation? Agree, disagree?
“Let the market decide.”
In other words, the price will be set based on four things: the number of individuals willing and able to run a gviven company, the number of other companies competing for the those individuals, the compensation each of those individuals is willing to accept, and the compensation each those companies is willing to pay.
In general, the harder and more miserable a company is to run, the higher the compensation will be. If a company decides that it would help morale if senior management is paid less, than is factored in to how much that company is willing to pay.
In the current US economic system, do you think the market gets to decide compensation?
The idea that stocks always go up and that regular people should put their savings into stocks has likely created a phenomenon of irresponsible stock ownership (just look at those nonsensical private equity firms IPO) where the owners of the company, confident that their stocks will always go up in value, don’t bother exercising control of the company they own. This would certainly benefit the upper management who could get away with taking more money out of the company than they really deserve.
ViennaSausage, no, it doesn’t. The current market suffers from heavy distortions (courtesy of the Fed.) It’d be remarkable if it mirrored the way a free market would tend to distribute wealth.
I think there’s a couple things to keep straight here. First, Austrian economics is a methodology of economic analysis, not a political philosophy. The Mises Institute calls itself a home for Austrian economics AND libertarian political philosophy. Yes, this is more than an accidental combination, but they aren’t the same thing.
The next thing is that, despite his obvious command of economics, Drucker was a management expert. So I prefer to interpret what he says, when I can, as advice to managers, not as suggestions for policy. I tend to agree with his assessment as a manner of good management.
Not entirely, no. But that doesn’t mean we need more laws to try to correct a problem that existing laws have created.
Are Austrians and/or libertarians swayed towards any particular management methodology? Or is this another let the market decide answer?
Is Drucker highly regarded in the Austrian/libertarian community?
The Koch brothers employ a management technique they call Economic Management, founded on the work of Mises, to great success in their enterprise. They’re not friendly to the Mises institute though.
Why aren’t they friendly to LvMI?
That is a mystery.