Monday, October 01, 2007

Executive Compensation

When I was a grad student at Cornell's School of Industrial and Labor Relations, I tended to think that management wasn't always the bad guy. And that if management and labor would just recognize that they have the same long-range goals we could all just get along. Chalk it up to youthful idealism.

The Ithaca Journal recently reprinted a Christian Science Monitor commentary column Are CEOs worth that much more? The article focuses on the disparity between corporate, not-for-profit and government executives. Top corporate executives make 38 times more than top non-profit executives and 183 times more than top members of the executive branch of the government (including the President.) The conclusion is that these extreme pay gaps "discourage many individuals with leadership talent from entering less lucrative nonprofit fields where their skills could make an important social contribution." I guess it depends on your long range goals.

Financial Week reports that, "Last year, the 20 highest-paid U.S. corporate CEOs made, on average, $36.4 million." That's roughly $7,280,000 in base pay, $9,100,000 in bonuses and $20,020,000 in "long-term incentives" such as stock options.

Comparing corporate CEO salaries to workers' wages, the picture is much bleaker and rapidly worsening. From a House Financial Services Committee report:
In 1965, U.S. CEOs at major companies made 24 times a worker's pay.
In 2004, CEOs earned 431 times the pay of an average worker and 821 times
the pay of a minimum wage worker.
Say a minimum wage worker is lucky enough to have a 40 hour a week job for 52 weeks (no vacation.) She earns $12,168. Eight hundred twenty one times that is $9,989,000.

The money for these high salaries doesn't come out of thin air, of course. It comes from increasing products' prices, decreasing shareholder dividends and tax savings from deducting salaries from taxable corporate income. I'm trying very hard, in vain, to think how this might benefit anyone except the CEOs themselves. If anyone can help me out here, please comment.

So. In April the House passed legislation allowing shareholders to vote on executive pay and Senator Obama has introduced similar legislation in the Senate. Seems fair to me. Financial Week reports that in Europe, where shareholders do vote on executive compensation, top executives earn one third as much as their American counterparts - $12.4 million compared with the $36.4 million American CEOs are paid.

Another legislative initiative in the US comes from Representative Barbara Lee (D-CA) promotes capping the amount of executive compensation that corporations are permitted to deduct from their taxable income, at 25 times the pay of a company's lowest-paid worker. For example, if the company has some of those minimum wages workers, they'd be allowed to deduct $268,000 of that executive's $8,794,552 salary. Think that might reduce the incentive for corporations to create those huge compensation packages? Hmm...

Others are suggesting that government contracts be withheld from companies paying their executives more than 25 - or 50 or 100 - times worker pay. I don't see that happening 'cause we'd be pretty much limited to buying a lot of Ben and Jerry's Ice Cream. And we probably need other stuff.

To learn more or find out how to support pending legislation visit the AFL-CIO's Paywatch page.


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