FAIR PAY REDUCE WEALTH GAP
As far as we know the Elon Musk’s proposed $50 Billion Tesla bonus is still up in legal limbo because the courts have not yet finally decided whether its legal. The audacity to request such a bonus, however, is breathtaking and it lays bare the issue of the vast wealth and income inequality that exists today. In Rao’s Solution (a novel by David Dixon Lentz) links for which are on this site, it’s pointed out that the pay gap ratio between the very highest paid CEOs and workers in the 1960s was about 100 to 1. Thus in a company where workers made $5,000 per year, CEOs would make roughly $500,000. Today, CEO’s make far more than that 100 times what workers make. 700 to 1 is not unheard of for some companies. This is contributes to the rise of oligarchy and the politically corrupting influence that money has on the American political scene. Elon Musk contributed well over $250 million to Trump’s 2024 Presidential campaign and Musk’s deep pockets make him a very influential force especially in Republican politics. Political decisions should be based on the merits of the various arguments presented by the candidates. Not on the basis of who has the deepest pockets and/or the largest campaign war chest.
In the last 10 years, Democrats have the mourned loss of the support that they traditionally had from workers at election time. Rao’s formula might well provide Democrats with a way to reconnect with workers. Folks are still struggling to catch up with the inflation caused largely by supply chain disruptions which, in turn, were caused by Covid, the Ukraine War, the bird flu, during 2021 through 2023. Increased federal deficit spending also contributed to inflation. Regardless, of the causes, however, worker wages have to catch up with the price increases caused by past inflation. This is because, for most goods (things like gas being the exception) it is very unusual for prices to come down once they’ve gone up.
Rao’s Solution provides one very unique way to go about raising worker pay. If Rao’s formula is put into law it would: start the process of reducing the unacceptable gap in CEO versus worker pay. Reduce the influence of the plutocrat/oligarchs in our society; and help everyone fight inflation by increasing worker pay. And, it would do so, in a way that is probably less inflationary itself than other ways of increasing worker pay.
Here’s an example of what Rao would require if Tesla’s board of directors were confronted with a request for a $50 Billion bonus where only Musk would receive all of the bonus funds.:
BETTER WAY TO PAY WORKERS MORE
REDUCE INCOME GAP BETWEEN CEOS AND WORKERS
UNDER RAO’s UNIQUE FORMULA
(in Rao’s Solution by David Dixon Lentz)
MUSK WOULD NOT GET ALL $50 BILLION
OF HIS REQUESTED BONUS
INSTEAD
EACH OF TESLA’S 141,000 EMPLOYEES
WOULD GET:….. $354,000
MUSK WOULD GET
“ONLY”………………. $35 MILLION
(NOT BILLION)
AND
PROBABLY LESS LIKELY
TO INCREASE PRODUCT COSTS
LESS LIKELY TO CAUSE INFLATION
Here’s the link to a page containing a video about Rao’s Solution:
[Important Author’s Note added 10/27/26: A common misconception about the formula Rao’s formula for fair pay is that all employees must be paid the amount calculated. This is false. Different employees at different skill and responsibility levels can be paid a different amount of compensation. In fact, after Rao was published the Author did a more detailed mathematical analysis of differing pay levels and how paying a certain number of employees more than the required Rao minimum affected the real world feasibility of employing Rao’s approach. As a result a very refined revised Rao formula was devised.
Again, Rao just sets forth the minimum that must be paid to by a company to all of its employees. Some or even most employees may be paid more than the Rao minimum. However, by requiring that all companies pay their employees at least the Rao calculated minimum it is felt that this will result in: (i) fairer pay that will allow workers a better standard of living; (ii) decrease the ever widening wealth and income gap between the wealthy (such as corporate CEOs); (iii) because of (i) and (ii) (A) decrease the chance that the U.S. will become an oligarchy run by billionaires (this is because working people will have more economic power to influence the political process); (B) allow families to better afford having much needed babies thus helping the U.S. to avoid or lessen the need for more (yes more) immigration to avoid economically harmful population decline and/or the insolvency of social security. On this last point without immigration the U.S. will suffer harmful population decline because America’s fertility rate (currently at about 1.6) is far below the required 2.1 which is necessary to maintain current population levels. Moreover, unless developments in artificial intelligence changes the situation dramatically (and it might) the U.S. simply must improve the worker to retiree ratio or future generations of workers will be taxed and worked to beyond the point of exhaustion.
Note also that Rao’s formula does not require companies to pay employees more like traditional minimum wage laws do. It is not a traditional minimum wage law. In this sense it puts far less pressure on the pocketbook of companies than periodic increases in traditional minimum wage laws. Under Rao, it is only when companies decide to increase CEO pay that Rao’s formula is triggered to test to see if all other employees have to be paid more as well. (And they almost always do.)
Note that the ratio used in the novel Rao’s Solution is one percent. Naturally any legislature can set the ratio of CEO to minimum worker pay at any level it wishes. The author in Rao’s selected one percent merely because that percentage closely approximated the actual ratio of worker to CEO pay in the 1960s when the U.S. had a bigger and financially healthier middle class.]