This idea comes up a lot, and, while I like the principle, there's a silly loophole that would need to be closed up somehow. The way I've heard it presented is like this: say you have a company, Burger Corp, where the lowest level cashier is a minimum wage earner making ~$15k per year. That would mean that Burger Corp's CEO could theoretically only be making ~$150k per year, right?
The way to get around it is to have all the low level employees be employed by Burger Corp Crew Members Inc, and all the executives be employed by Burger Corp Executive Services Inc. If the lowest level employee of Burger Corp Executive Services makes $500k, then that means the CEO could make $5M. BCES then contracts with BCCM to actually staff the stores.
I'm not sure how much of a problem this would actually be, but it does cut against the spirit of the idea of limiting CEO pay. I'm also not sure what the best way to close this loophole would be that also preserves the spirit of the rule, but the lesson here is that people will get around any arbitrary rule like this quite easily. That's actually how we ended up with CEOs having fairly low actual salaries (IIRC, Jeff Bezos takes a salary of around $80k, and a number of CEOs take $1 salaries), and the rest of their comp in stock -- an IRS rule change at some point (I believe in the 80's) is what brought on this trend, which still continues today.
I think having both the companies owned by the same people would come under quick scrutiny, and the companies would quickly move to finding someone to pay for a "service" for all their low-paid worker needs.
So you'd end up with Burger Corp being executives like you said, and then hiring Service Company X to do all their cashiering and burger-flipping and janitorial services. They'd be owned by completely different people, and Service Company X might even service multiple companies much like many temp staffing agencies today.
Attempting to stop this would also kill most existing janitorial services among other things, and it'd be really hard to regulate.
In the end, things move around, but they don't really change.
Exactly. The only fundamental difference, even if the companies have different ownership, is one of accounting. I don't think there's any way to prevent this kind of structure from emerging, either.
Ah, but Burger Corp Executive Services doesn't sell burgers; they provide strategy and direction (and other "executive stuff") to a company (Burger Corp Crew Members) that sells burgers.
To counter the next potential fix that comes up after this usually: suppose BCES also provides "executive services" to "Really Good Burgers, Inc." (and a few other "burger" companies).
As long as you can show the courts that it's a legitimate business relationship and the executive company has no equity stake, board positions, or other influence on the burger company. If the contract for executive services isn't bid on by other unrelated providers, then it's going to smell like bullshit to the courts.
Contracting out things like janitorial and facility maintenance services (basically the same workflow as what you're describing) is how BigCos get to make grandiose claims about how all their employees make at least X. The people making less don't work for them, they work for the facilities maintenance, catering or administrative staffing firms that bigCo hires to provide those services.
The way to get around it is to have all the low level employees be employed by Burger Corp Crew Members Inc, and all the executives be employed by Burger Corp Executive Services Inc. If the lowest level employee of Burger Corp Executive Services makes $500k, then that means the CEO could make $5M. BCES then contracts with BCCM to actually staff the stores.
I'm not sure how much of a problem this would actually be, but it does cut against the spirit of the idea of limiting CEO pay. I'm also not sure what the best way to close this loophole would be that also preserves the spirit of the rule, but the lesson here is that people will get around any arbitrary rule like this quite easily. That's actually how we ended up with CEOs having fairly low actual salaries (IIRC, Jeff Bezos takes a salary of around $80k, and a number of CEOs take $1 salaries), and the rest of their comp in stock -- an IRS rule change at some point (I believe in the 80's) is what brought on this trend, which still continues today.