13 September 2010

Executive Salaries Are Way Out Of Line

It should come as no surprise to anyone who has been keeping up with the economic news that corporate executive salaries and compensation are way out of line, especially when compared to the salaries of workers in the same company. And it does not seem to matter whether those executives are successful or not. Those who oversee company failures make millions of dollars -- even the ones who are forced out of their jobs (but you can bet that no ordinary company worker is given any "golden parachute").

One would think that a company that has had to lay off thousands of workers (a sure sign the company is having trouble) would also cut the salaries of the executives running those companies. But that has not happened. In fact, it's beginning to look like those workers were laid off so the executives could keep their enormous salaries.

According to the Institute for Policy Studies (IPS) in their annual report on executive compensation, the "CEOs of the 50 firms that have laid off the most workers since the onset of the economic crises took home nearly $12 million on average in 2009." These companies laid off 531,363 people while reporting a 44% average profit increase in 2009.

But whether a company is in trouble or not, corporate executive salaries have been skyrocketing while the salaries of workers have been depressed by those same executives. The IPS says:

"[A]fter adjusting for inflation, CEO pay in 2009 more than doubled the CEO pay average for the decade of the 1990s, more than quadrupled the CEO pay average for the 1980s, and ran approximately eight times the CEO average for all the decades of the mid-20th century.
American workers, by contrast, are taking home less in real weekly wages than they took home in the 1970s."

There is no logical reason for executive salaries to rise that much while worker salaries have gone down. All employees are valuable to the success of a company (or they wouldn't be working for the company). Why shouldn't worker salaries rise at the same rate as executive salaries? Shouldn't all company employees, regardless of rank, share in the company success they helped to create?

Another way of looking at the outlandish salaries of American corporate executives is to compare them to the salaries of Japanese corporate executives -- a country where corporations have been exceptionally successful. According to the IPS, American executives make 263 times the average compensation of their workers (up from 30 to 1 in the 1970's). Note that is the average compensation, not the minimum compensation of workers. In comparison, Japanese executives make only 16 times as much as their average worker.

Many American corporations would like for us to believe they have to pay these outrageous salaries to executives while laying off workers and depressing worker salaries. They claim they could not get top executive talent otherwise. That's simply a giant load of horse manure! The Japanese don't seem to have any trouble attracting good executives. Their corporations are performing at least as well (and sometimes better) than American corporations.

Don't get me wrong. Japanese executives are well paid for their efforts. But so are their workers. They simply believe that all employees should share in a corporation's success, and not just the executives. And that formula has worked well for them and created a company loyalty among all employees -- a loyalty that furthers the success of the company.

American executives have simply abandoned the idea of fair treatment of their workers. They have bought into the "greed is good" philosophy and are grabbing every dollar they can -- even if they have to abuse their own workers to do it. This is not just unfair, but has been a big contributing factor to the huge income disparity in America between the top 5% and everyone else, setting up the conditions for our current recession (and future recessions if it is not fixed).

Since it has become obvious that corporate executives and corporate boards are either unable or unwilling to rein in corporate salaries (and institute a more equitable and reasonable worker-to-executive salary ratio), the federal government should step in and place a limit on that worker-to-executive salary ratio. What that ratio should be can be debated, but it is necessary to put a limit on it. It is necessary for the health of the overall economy.

I know that many will scream that is "income redistribution" and income redistribution is bad -- some would even label it as socialism. What these people fail to realize (or are unwilling to admit) is the fact that income is being redistributed every day in America (and in all countries under all economic systems). The problem is that in our largely de-regulated capitalist system this money is being redistributed from workers and ordinary citizens to the richest among us, creating a wildly unbalanced and unhealthy income and wealth distribution.

I'm sure this limiting of worker-to-executive pay ratio will be fought by the corporate interests. That is because they are today only interested in short-term profits, and not the long-term health of the country and their companies. The truth is that the corporations would benefit from a more equitable income distribution as much as workers would. While they might have to pay their own workers more, they would reap the benefits of all the nation's workers having more money to spend -- which means more money to buy the corporate products.

"Income redistribution" is not a bad thing. It happens every day. It just needs to happen in the right way -- a way that would be positive for everyone.
Posted by Ted McLaughlin

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