To sharpen our focus on this debate, let us bring Aristotle back into the discussion. By giving an account of the correct and fairest apportionment of labor, Aristotle connects reflections concerning the vertical array of human capabilities to the wider economic makeup of society, maintaining that those at the top of the natural pecking order ought to be occupied in undertakings so as to contribute the most to the economy and to society. From an Aristotelian standpoint, curtailing someone's chances to cultivate their skills in the name of equality contravenes justice. Even less justifiable is exalting those with little ability, making them leaders of society, or captains of enterprises, meanwhile keeping those of highest natural ability at the lowest strata. Aristotle's contention is that meritocracy provides the most just type of arrangement. All are better off from governance by the most proficient.
Firms need to make decisions about how they set compensation levels for all job functions. Assessing just what warrants merit is a matter of justice in distribution. However, as the following passage points out, those on contending sides of the issue are inclined to espouse positions in line with their personal interests. Within oligarchies, the governing elite pins merit to wealth. By contrast, in democracies the populace claims an equal entitlement to goods.
Let us begin by considering the common definitions of oligarchy and democracy, and what is justice oligarchical and democratical. For all men cling to justice of some kind, but their concepts are imperfect and they do not express the whole idea. For example, justice is thought by them to be, and is, equality, not, however, for all, but only for equals. And inequality is thought to be, and is, justice; neither is this for all, but only for unequals. When the persons are omitted, then men judge erroneously. The reason is that they are passing judgment on themselves, and most people are bad judges in their own case. And whereas justice implies a relation to persons as well as to things, and a just distribution, as I have already said in the Ethics, implies the same ratio between the persons and between the things, they agree about the equality of the things, but dispute about the equality of the persons, chiefly for the reason which I have just given—because they are bad judges in their own affairs; and secondly, because both the parties to the argument are speaking of a limited and partial justice, but imagine themselves to be speaking of absolute justice.73
Thus, to Aristotle each perspective carries a partial truth. Getting at the whole truth requires some philosophical reflection. Aristotle's conclusion is that merit is tied to traits that allow someone to perform a task in question. The problem of how to allocate instruments among flute players provides an illustration. Should we ask whether a flutist is rich or poor? Should we inquire whether the player is legally on par with the others? Aristotle's answer is no: what really counts is how well they can play the flute. The musicians that can play them well ought to get the best flutes. The players having less proficiency should get the inferior flutes.
When a number of flute-players are equal in their art, there is no reason why those of them who are better born should have better flutes given to them; for they will not play any better on the flute, and the superior instrument should be reserved for him who is the superior artist…. For if there were a superior flute-player who was far inferior in birth and beauty, although either of these may be a greater good than the art of flute-playing, and may excel flute-playing in a greater ratio than he excels the others in his art, still he ought to have the best flutes given to him, unless the advantages of wealth and birth contribute to excellence in flute-playing, which they do not.74
To decide differently makes for a mismatch. Superior quality flutes are wasted on maladroit players. Interestingly, such a principle can be readily applied to the business world. A firm considering who'll get promoted to senior vice president, will query: Which of our candidates holds promise to be the most excellent for this role, adding maximum value to our enterprise? But notice that here the locution “maximum value,” does not signify “maximum profit-maker.” After all, profits are not the goal of life. Rather profit is merely a means to attaining happiness and the good life, which is constituted through virtuosity—that is, virtuous business conduct. We shall examine the connection between profit generation and virtue in greater detail in Chapter 3 (“The Art of Business”).
Aristotle's take on this suggests that company heads ought to allocate benefits, bonuses, job advancements, raises, and the like, not simply along lines calculated to achieve maximization of profit, but as a way of rewarding and incentivizing virtuous behavior.
Aristotle's overarching regard is for the welfare of the whole community. Aristotle does not want to posit a natural human pecking order as a rationale for prizing the genetically endowed at the top. Nor is he seeking to lighten the load for the well-off. To the contrary: people having the greater abilities ought to be released from the more menial tasks in order to focus on things that maximize their capabilities and the social gains they may bring about. Those atop the ladder shoulder responsibility for assisting those on the lower rungs. By doing that, all are elevated from the presence of inequalities rooted in genuine abilities and aimed toward economic betterment.
To turn to a contemporary illustration, we might ask why Steve Jobs, founder, chairman, and CEO of Apple, ought to be the one rendering executive decisions at the company. The answer is not that he has some natural right to be in charge, or that he is “a productive narcissist.”75 Rather, it is to everyone's advantage, across the organization, that the best talent be placed at the summit. After all, who in their right mind would sign on at Apple if the firm's guiding mission was a commitment to uncompromising equality, mandating that those appointed to the firm's top-tier executive squad be mentally challenged workers selected from the cleaning crew, leaving Steve Jobs to be the elevator operator?
While taking an Aristotelian virtue perspective is not likely, by itself, to provide a comprehensive solution to the executive compensation imbroglio; doing so at least suggests some questions that virtuoso leaders would want to pose to themselves, questions that point in a much different direction than the one indicated by the sort of conventional economic analysis described earlier: Is my remuneration commensurate with my contribution to the firm? Is the current allocation of goods within our firm helping to foster the happiness of the community our firm makes up, or is it actually dampening morale and inhibiting other people from attaining happiness?
Moreover, an Aristotelian outlook implies that in assessing the conventional pay-for-performance paradigm, we ought to distinguish between, on the one hand, high financial rewards for “performance” in firms and, on the other hand, the value creation arising from the firms' activities. For instance, it has been argued that an aggressive quest for profits in banks and other financial institutions has been value destroying, not only for the institutions themselves, but ultimately for society and human welfare, as manifested in the financial crisis.
Indeed, it is arguable that the costs and externalities associated with a given profession's activities should be deducted in calculating that profession's Social Return on Investment (SROI) contribution, a la the New Economic Forum's approach.76 Looking at broader indicia such as SROI prompts the question: Why on earth are executives working in certain sectors, such as banking and financial services, the privileged recipients of such extraordinary rewards?
On a wider account of wealth creation—particularly in light of the concerns voiced by Aristotle with regard to the proper and improper ends of money—such as his “money from money” critique cited earlier in this chapter,77 it could be asserted within the spirit of this criticism that, even in the course of favorable economic periods, banks (to name but one financial institution), in the course of taking deposits, transmitting and clearing payments, and bringing investors and savers together with users of capital and borrowers, play merely a secondary role as facilitators for the primary economic participants who render more direct and pronounced contributions to society. So why are bankers the object of “hero worship,” and why did the attitude emerge that treats bankers “as masters rather than servants of the economy”?78 Arguably, it is in carrying out this secondary role that banks negligently overreached by overleveraging deposits in risky bids for ever greater profits, thereby destroying, rather than creating, value. Strangely, even