Pay Inequality and Inequity Aversion

I was reading something on Inequity Aversion, specifically the Ultimatum Game. Basically, It is played between two players where one person gets a sum of money and must decide how that money is divided between the two. If the other player is unhappy with the division then they can veto the decision and no player gets any of the money. The average minimum accepted amount that was generally not vetoed was that the holder of the money keeps 80% and the other player keeps 20%.

I was thinking about this and the pay divide and thought that maybe a good first step for governments might be to mandate that the highest paid member of the company can only earn, as a minimum, 80% more than the lowest paid member (of course this would also include the sum total of share options and other perks).

For example, if a CEO earn's $1,000,000 per year in their company then the lowest paid worker would earn $200,000 per year. If the CEO wishes to earn more, say $1,500,000, then the whole organisation would have to work to ensure that lowest paid worker earned $300,000 per year.

This can equally be worked out in terms of hourly wage. Let's say our CEO works 50hrs a week giving him a $1,000,000 salary for the year her hourly rate would be:

     Hourly rate of highest paid worker = Annual Salary/(weekly hrs x 52 weeks in a year)

     Hourly rate of highest paid worker = 1,000,000/(50/52)

                           1,000,000/2600
                           $385 per hour

    Hourly rate of lowest paid worker =

                           Hourly rate of highest paid worker - (hourly rate of highest paid worker x 80%)
                           $385 - (385 x 80%)
                           $385 - (308)
                           $77 per hour


If the highest paid members wish to earn more then they had to work with all members of the company to increase the minimum wage of the lowest paid member. This would also incentivise all members of the organisation to seek to improve the business. Just a thought I am chewing on at the moment.

I think that when management are incentivised in this way they would also be willing to be more open about he goals of their company with all its members so they can work together to move forward.