Persuasive Business Letter – Ankelo J. Aurelus(4)
I wrote a business letter to Congressman Richard Neal requesting him along with congress to consider creating a bill that curbs excessive CEO remunerations by requiring businesses make their financial reports more accessible. By making these financial reports more accessible, it allows for more worker participation and oversight in determining how company profits are redistributed.
I choose this topic because I am interested in finding solutions to making society more equitable and was disgusted with the greed many at the top revel in. Congressman Richard Neal is the Chairman of the Ways and Means Committee which is the chief tax-writing committee and had already drafted a bill to curb CEO overpay. I knew that he would be sympathetic to my concerns by researching his voting record and policy proposals. Economic policy is the main focus of his career and quite familiar with the problems with America’s tax code. It’s a problem that he has raised and fought for repeatedly.
Logos was a large component of my letter and was what I focused on the most. For my evidence, I scoured books, economics articles and periodicals, and statistics. My statistical data also served dual purposes as I used it as pathos to illustrate the effects CEO overpay has on average workers.
I mostly changed some syntax and diction choices and I wouldn’t change much.
Persuasive Business Letter Final Copy
The Honorable Richard Neal
Chairman of the Ways and Means Committee
U.S. House of Representatives
1102 Longworth House Office Building
Washington D.C. 20515
October 14, 2020
SUNY New Paltz
1012 Hawk Drive
New Paltz, NY, 12561
Dear Congressman Richard Neal,
I am Ankelo Jeff Aurelus, a Business undergrad at SUNY New Paltz. I am writing to you because I learned about a solution to the problem of CEO overcompensation and you happen to be the Chairman of the Ways and Means Committee. Your committee has introduced legislation called CEO Accountability and Responsibility Act which would increase the tax rate for CEOs making 100 times more than their employees. However, I believe there is a better way of combating this problem than simply taxing based on ratios.
Let me begin by illustrating the problem. In 2019, Walt Disney CEO Bob Iger’s salary was $65,645,214. His workers: $46,127 (Morris). That is a CEO-to- employee ratio of about 1,423:1. Clearly, wealth inequality exists and negatively affects society. However, this inequality in the United States has risen over the past few decades. The average pay for CEOs at US firms is $18.9 million (Baker). Conversely, wages have stagnated and happiness levels haven’t increased since the 60s (Flower 5). Minority groups such as African-Americans still lag behind in wealth accumulation compared to their White counterparts. As Chairman of the Ways and Means House Committee, you also are very aware of these inequalities and have tried to take steps to address them.
While addressing excessive CEO remuneration would not completely fix wealth and income disparities, it would be an important step towards decreasing inequality. That is why I believe Congress should push for better worker representation along with more transparent financial statements because these measures promise to reduce wage inequalities between workers and CEOs. Following the philosophy of distributive justice, these policies promise to create a more fair and equal playing field for everybody.
Mandating that corporations provide more accessible financial information would help unions, shareholders, and other representatives decide what should be done with executive pay. The International Accounting Standards Board, or IASB, asserts that the only objective of financial reporting is providing information for investors, lenders, and other creditors (Flower 149). Yet I push back against this stance because “Financial reporting is a social activity that fulfils a social need” (146). That social need is the common citizen needing to trust their financial system. While yes, publicly-traded companies do disclose financial information, there is still room for improvement. Making private companies more transparent should also be a goal.
Firms are not benign organizations, rather, they are public entities. John Flower’s Stakeholder theory revolves around the idea that a stakeholder is anyone who has a stake in the firm’s success (shareholders, workers, customers, the state, and management). A worker depends on the firm for a wage; shareholders want to see their return on investments, and the state relies on finished goods and services to increase national output (or real GDP). They are the primary stakeholders. Secondly, there are also secondary stakeholders such as the surrounding community. This community may not directly interact with the firm (i.e. buying or using their goods and services), but they can certainly be affected by other externalities such as pollution (Flower 159). Mr. Neal, I am sure you would agree that firms have at least some responsibility to society. Due to the complexity of our macro economy, no economic activity is made independently from the financial environment. If we say that we as individuals and the government are indebted to society, then surely corporations should be so as well.
In Germany, the Stock Corporation Act allows employees and shareholders to use the information to direct money into areas they choose such as reinvestment or an increase to base pay. While the government first takes a tax from revenues and the firm must save half of their earnings, stakeholders decide how the remaining profit is spent (Flower). Following Germany’s lead would be a huge win for stockholders who have been fighting for increased power. Stockholders currently can only change a CEO’s pay structure rather than the level of CEO pay (Baker et al). However, modeling current and future procedures after the German law will help firms increase employee bonuses, and gain variable rate securities and debt covenants.
Additionally, through the lens of Rawl’s theory of justice, requiring more financial transparency in corporate financial statements gives access to primary goods that benefit the least privileged. The government will be able to base its taxation on these more accurate reports. This means it would be harder for companies to pay little to no tax, and more money will be able to be used for social programs such as increased funding for Medicare or federal aid. The more expanded reports would include a record of employee benefits, employment security, and the reporting data relating to discrimination. All this data would help employees and governments make decisions that positively impact traditionally marginalized groups. Governments can also use the data to design progressive tax rates that will enrich social programs that benefit society.
While these suggestions could certainly help society, a neoliberal such as Milton Friedman would disagree with my analysis. He would argue that CEOs are paid fairly and that neither government, stockholders, or anyone else interfere with the market. However, managers wield an enormous influence on the board of directors who controls their pay. So CEOs aren’t paid these extraordinary wages simply because of market forces. The board of directors is usually friends with the CEO so they have unprecedented power over their own pay. (Villiers). Friedman would most likely reply that CEOs are more valuable to a company than an average employee. This is problematic because it is “generally agreed by philosophers and economists that, in the present state of knowledge, it is not possible to measure the utility experienced by an individual in common units that enable comparisons between individuals” (Flower 87). So to say that an executive should be paid more for their work would not be fair. Taking it to its logical extreme, it means that those with disabilities cannot receive compensation due to their diminished “output.” Certainly, no one would advocate for that.
And yes, CEOs are extremely valuable to any company as they navigate and keep the company afloat. But the issue isn’t how valuable a CEO is at doing their job; rather, “how valuable a specific CEO is relative to the other people who could fill the position” (Baker et al). The majority of CEO pay comes from stock options or company stock, so that means “anything that causes a company’s stock price to rise will lead to higher pay for the CEO” (Baker). There are simply too many variables in the stock market to attribute all the achievements to the CEO.
It is also worth noting that relatively few of those on the board understand the pay packages they grant to CEOs. An analysis by Shue and Townsend found that “most boards continued to issue the same number or a greater number of options to CEOs, even as the value of these options hugely increased…because they did not want to seem to be cutting the pay of their CEOs” (Baker). If we cannot trust the board to reign in excessive remuneration, then government intervention is necessary.
True, shareholders may become a bit richer from their increased influence, but shareholders’ having increased dividends is better than simply allowing rampant overcompensation. And if the goal is more transparency and oversight, giving shareholders more power is not a big issue. Shareholders would be able to significantly reduce the wage-gap, though importantly, in tandem with other policies.
Your committee has already introduced a bill that would use progressive taxes to increase revenue for government spending. Unfortunately, current economic policies do not go far enough to fully reign in excessive remuneration nor give enough power to shareholders and workers. In a year of social upheaval, and a global pandemic where “economists predict that only 58% of workers are likely to return to their previous job,” it is time to dismantle economic inequality (Goger). Make business more transparent so that America’s faith in the financial system can be restored.
Thank you for giving your time Mr. Neal, and I hope you implement these policies this year.
Best Regards,
Ankelo J. Aurelus
Works Cited
Baker, Dean, et al. “Reining in CEO Compensation and Curbing the Rise of Inequality.” Economic Policy Institute, 4 June 2019, www.epi.org/publication/reining-in-ceo-compensation-and-curbing-the-rise-of-inequality/.
Flower, John. Accounting and Distributive Justice, Taylor & Francis Group, 2010. ProQuest Ebook Central, https://ebookcentral.proquest.com/lib/newpaltz-ebooks/detail.action?docID=534219.
Goger, Annelies. “Turning COVID-19’s Mass Layoffs into Opportunities for Quality Jobs.” Brookings, Brookings, 16 Sept. 2020, www.brookings.edu/research/turning-covid-19s-mass-layoffs-into-opportunities-for-quality-jobs/.
Morris, Chris. “Here Were Last Year’s Most Overpaid CEOs.” Fortune, Fortune, 25 Feb. 2020, fortune.com/2020/02/25/most-overpaid-ceos-2019/.
Villiers, Charlotte. “Controlling Executive Pay: Institutional Investors or Distributive Justice?” Journal of Corporate Law Studies, vol. 10, no. 2, Oct. 2010, pp. 309–342. EBSCOhost, doi:10.5235/147359710793129408.
Persuasive Business Letter Rough Draft
The Honorable Richard Neal
Chairman of the Ways and Means Committee
U.S. House of Representatives
1102 Longworth House Office Building
Washington D.C. 20515
October 14, 2020
SUNY New Paltz
1012 Hawk Drive
New Paltz, NY, 12561
Dear Congressman Richard Neal,
I am Ankelo Jeff Aurelus, a Business undergrad at SUNY New Paltz. In 2019, Bob Iger had a salary of $65,645,214. His workers: $46,127 (Morris). That is a CEO-to- employee ratio of about 1,423:1. Clearly, extreme wealth inequality exists and negatively affects society. However, inequality has risen over the past few decades. The average pay for CEOs is $18.9 million. (Baker). Wages have stagnated and happiness levels haven’t increased since the 60s (Flower). Minority groups such as African-Americans still lag behind in wealth accumulation compared to their White counterparts. As chairman of the House Committee of Ways and Means, you also are very aware of these inequalities and tried to take steps to address them.
While addressing excessive CEO remuneration would not completely fix wealth and income disparities, it would be an important step towards decreasing inequality. Congress should push for better worker representation along with more transparent financial statements because it reduces large inequalities in pay between workers and CEOs. Following the philosophy of distributive justice, these policies create a more fair and equal playing field for everybody.
More accessible financial information would help unions, shareholders, or other representatives decide what should be done with executive pay. The International Accounting Standards Board, or IASB, asserts that the only objective of financial reporting is for investors, lenders, and other creditors (Flower 149). Yet I push back against this stance because “Financial reporting is a social activity that fulfils a social need” (146). That social need is the common citizen needing to trust their financial system.
Firms are not benign organizations, rather, they are deeply personal ones. John Flower’s Stakeholder theory revolves around the idea that a stakeholder is anyone who has a stake in the firm’s success (shareholders, workers, customers, the state, and management). A worker depends on the firm for a wage, shareholders want to see their return on investments, and the state relies on finished goods and services to increase national output (or real GDP). They are the primary stakeholders. Secondly, there are also secondary stakeholders such as the surrounding community. This community may not directly interact with the firm (i.e. buying or using their goods and services), but they can certainly be affected by other externalities such as pollution (Flower). Mr. Neal, I am sure you would agree that firms have at least some responsibility to society. Due to the complexity of our macroeconomy, no economic activity is made independently from the financial environment. If we say that we as individuals and the government are indebted to society, then surely corporations should be so as well. With that Mr. Neal, I turn your attention towards Germany where there are laws that allow this.
In Germany, the Stock Corporation Act allows Employees and shareholders to use the information to direct money into areas they choose such as reinvestment or an increase to base pay. While the government first takes a tax from revenues and the firm must save half of their earnings, the rest is for the stakeholders to decide (Flower). It would be a huge win for stockholders who have been fighting for increased power. Stockholders currently can only change a CEO’s pay structure rather than the level of CEO pay (Baker et al). However modeling after the German law allows the firm to have more employee bonuses, variable rate securities, and debt covenants. It creates more confidence in our financial system as companies are forced to be truthful.
Additionally, through the lens of Rawl’s theory of justice, allowing more financial transparency also gives access to primary goods that benefit the least privileged. The government will base its taxation on these more accurate reports. This means it would be harder for companies to pay little to no tax, and more money will be able to be used for social programs such as increased funding for medicare or financial aid. The reports will also record benefits, security of employment, and the prevalence of discrimination which helps employees and governments make decisions that work for those individual groups who normally don’t have a voice. Governments will use the data to apply progressive taxes that would enrich social programs that benefit society.
While this could certainly help society, a neoliberal such as Milton Friedman would disagree with my analysis. He would argue that CEOs are paid fairly and it’s not for other externalities to interfere with the market. Managers, but especially CEOs, have an enormous influence on the board of directors who controls their pay. So CEOs aren’t paid these extraordinary wages simply because of market forces. The board of directors are usually friends with the CEO so they have unprecedented power over wages. (Villiers). Friedman would most likely reply that CEOs are more valuable to a company, they are worth more than an average employee. That is problematic because it is “generally agreed by philosophers and economists that, in the present state of knowledge, it is not possible to measure the utility experienced by an individual in common units that enable comparisons between individuals” (Flower 87). So to say that an executive should be paid 10% more for their work wouldn’t be fair. Taking it to its logical extreme, it means that those with disabilities cannot receive compensation due to their diminished “output”. Certainly, no one would advocate for that.
It is also worth noting that relatively few of those on the board understand the pay packages they grant to CEOs. An analysis by Shue and Townsend found that “most boards continued to issue the same number or a greater number of options to CEOs, even as the value of these options hugely increased..because they did not want to seem to be cutting the pay of their CEOs” (Baker). If we cannot trust the board to reign in excessive remuneration, then government intervention is necessary.
True, shareholders may become a bit richer from their increased influence, still but it is a better proposition than simply allowing rampant overcompensation. And if the goal is more transparency and oversight, that wouldn’t be as big of an issue. Shareholders would be able to significantly reduce the wage-gap, though importantly, in tandem with other policies.
Your committee has already introduced a bill that would use progressive taxes to be used for government spending. Unfortunately, it doesn’t go far enough to fully reign in excessive remuneration nor give enough power to shareholders and workers. In a year of social upheaval, and a global pandemic where “economists predict that only 58% of workers are likely to return to their previous job”, it is time to dismantle economic inequality (Goger). Make business more transparent so that America’s faith in the financial system can be restored.
Thank you for giving your time Mr. Neal, and I hope you implement these policies this year.
Best Regards,
Ankelo J. Aurelus
Works Cited
Baker, Dean, et al. “Reining in CEO Compensation and Curbing the Rise of Inequality.” Economic Policy Institute, 4 June 2019, www.epi.org/publication/reining-in-ceo-compensation-and-curbing-the-rise-of-inequality/.
Flower, John. Accounting and Distributive Justice, Taylor & Francis Group, 2010. ProQuest Ebook Central, https://ebookcentral.proquest.com/lib/newpaltz-ebooks/detail.action?docID=534219.
Goger, Annelies. “Turning COVID-19’s Mass Layoffs into Opportunities for Quality Jobs.” Brookings, Brookings, 16 Sept. 2020, www.brookings.edu/research/turning-covid-19s-mass-layoffs-into-opportunities-for-quality-jobs/.
Morris, Chris. “Here Were Last Year’s Most Overpaid CEOs.” Fortune, Fortune, 25 Feb. 2020, fortune.com/2020/02/25/most-overpaid-ceos-2019/.
Villiers, Charlotte. “Controlling Executive Pay: Institutional Investors or Distributive Justice?” Journal of Corporate Law Studies, vol. 10, no. 2, Oct. 2010, pp. 309–342. EBSCOhost, doi:10.5235/147359710793129408.