Politicians Having Guaranteed Pay Means They Lack Skin-In-The-Game, And That Is A Big Problem

Their insulation from the impact of their policies – along with the many public officials who are insulated – creates a ‘two-tier’ country.

Skin-In-The-Game, a concept most effectively articulated by Nassim Nicholas Taleb (one of the few people who predicted the 2008 financial crisis), was once a staple of leadership.

As much as ancient rulers are derided as living lives of opulence amid brutal suffering around them, they also regularly paid the price for their policies.

Kings would often lead their people into war at the head of their armies, meaning they could be killed if they ordered an ill-advised attack, or would perish if their forces were defeated and their territory seized.

The most successful institutions often try to replicate the concept in the modern era, with many companies providing performance incentives, and skilled leaders recognizing that they should forgo their bonuses and benefits when their employees and companies are struggling.

Unfortunately, that idea of skin-in-the-game doesn’t seem to exist in our political system.

In fact, it seems to be just the opposite, with politicians having increasingly rigged the system in their favour to ensure that they are protected financially regardless of what takes place in the broader country.

Consider that MPs need to work just 6 years to get access to a pension, which usually means being elected, and then re-elected just one more time. That is far more generous than what almost anyone else in the country gets.

Beyond that, MPs have set up a bonus and incentive structure which pays them more for being on committees, and much for being in cabinet, all on top of a base salary that is well-above the Canadian average.

Now, some will say “these are the people running the country, so shouldn’t they be paid more?”

The answer to that is they are supposed to be public servants, and servants aren’t usually paid more than those they serve.

Politicians also regularly receive pay increases that are above the national average, and they are also able to continue getting paid even when they miss a tonne of work.

But the biggest issue here is that they get this generous pay regardless of performance.

Entitled, Insulated, Arrogant

Over this past year, we’ve witnessed politicians of all stripes and at all levels repeatedly say “we’re all in this together.”

They say this as they lockdown jurisdictions, arrest people for trying to keep their businesses open, force tens of thousands of businesses to close, cost hundreds of thousands of jobs, and make it incredibly difficult for many to make ends meet.

Yet, the entire time, their salaries, their pay increases, their benefits, and their completely insulated financial position is unaffected.

They pay ZERO financial price for their own policies.

Thus, it’s easy for politicians to demand repeated lockdowns, since they don’t feel any impact from them.

Additionally, public officials and bureaucrats also receive guaranteed pay.

As a result, they also can easily advocate for more and more lockdowns, since they will be financially secure regardless of what happens.

We have seen how this leads to an arrogant attitude, as politicians look down on and lecture people who are fighting to keep their businesses alive.

A Two-Tier nation

Whenever there is talk of ‘Two-Tier-Healthcare,’ many Canadians panic and denounce it.

Yet, we’ve built a dangerously Two-Tier society, where the Government Tier gets to impose policies on the Private Tier, while being 100% exempt from the consequences of those policies.

There is even a further perverse incentive here, in that the more the Government Tier can weaken the Private Tier, the more people demand more power for the government.

The irony of course is that the Government Tier only exists because of the Private Tier.

The Government Tier doesn’t produce any income, it simply takes income from the Private Tier and redistributes it.

In many ways, that isn’t a bad thing, considering that we certainly need roads and police and fire departments and so on.

But when those who rule the Government Tier have no incentive to consider the needs of the Private Tier, things start to get badly out of hand.

What is the fix?

People often act as if this is simply an inevitable problem, that it’s somehow the nature of politicians and government officials to occupy a position that exempts them from the consequences of their policies.

But this is false.

With just a bit of creativity and common-sense, we can come up with ideas that would rebalance this relationship.

To start with, politicians base-salaries should be set at the Canadian median income, and increase only in line with that median income. Bonuses for more work (like being a cabinet minister), would be appropriate, but Canadians should get to chose how high that bonus percentage would be in a referendum (which could easily be attached as a page in a General Election ballot).

Thus, politicians would see their pay move perfectly in line with the pay of the Canadian People.

If the economy started to boom, politicians would benefit.

If the economy fell, politicians would feel it.

This would of course require a strong and independent Bank of Canada that is focused on monetary responsibility and sound money, to eliminate the incentive for politicians to try and artificially inflate the economy to boost their own pay.

Another (albeit more complicated) option would be to have an independent commission that could declare “government-caused economic damage,” in moments when government policy clearly led to an economic decline (such as lockdowns). That declaration would then trigger a 50%-25% cut in politician pay, making it clear that they could not evade the suffering they cause to others.

Personally, I would favour the first option, as it seems most fitting to have the pay of politicians perfectly track with what the average Canadian is getting.

Both could be combined as well, with an overall reduction in pay, and a mechanism to ensure that politicians who lockdown the private sector lose a large portion of their own pay as well – which may make them think twice before causally destroying thousands of businesses.

On the issue of pensions, that could also be easily fixed.

Simply set the pensions of politicians at the median Canadian pension amount, and require them to work as many years in office as the average Canadian works to get their pension.

In terms of the broader bureaucracy and public employees, the key issue is that wages often exceed the private sector, and increase at a faster rate.

That could be fixed by mandating in law that public sector wage increases can never exceed the average private sector wage increases for a given year.

Skin-In-The-Game

We cannot continue to accept a situation in which politicians and public officials are completely insulated and exempt from the impact of their policies.

We need to return to the concept of Skin-In-The-Game, and the ideas mentioned above are a good first step towards getting there.

Spencer Fernando

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