A Demotion for All CEOs

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I love false outrage. You can usually smell it a mile away-a whiff of high-horse with a hint of sanctimony, kind of like Old Spice on your great uncle. It's been especially pungent on the issue of executive pay.

Recently, the outrageous sums of money that executives make have been spotlighted. We've all heard about the billions in taxpayer money that banks, automakers and AIG have sucked away, posh executive junkets (Wells Fargo) and lavish office renovations (Merrill Lynch). All that makes jaw-dropping annual salaries a hot news story.

But this is not news.

Executives in the United States have been outpacing the rest of the country-as well as their international counterparts-in compensation for decades. In 2007, executives made 344 times what the average American worker made. Some would argue the recession has its roots in this plain fact.

How do we explain such a wage gap? While it's common sense that the leader of an organization gets paid more than the average worker, saying that one person is 344 times more valuable than the average worker is harder to swallow. This is a thorny issue because we all believe in free markets and capitalism (apologies to the Berkeley Marxist community). We let the markets dictate pretty much everything, including compensation.

But is executive pay set by the market, or by market manipulators? Typically, companies set pay by doing a market survey to find out what everybody else in a particular field is making, then they locate an individual somewhere on that continuum. This works because there is always someone higher on the food chain who sets values that companies can afford. But who's higher on the food chain than the CEO? Who objectively weighs how much that person is worth to the organization?

The board of directors is probably the closest you'll come to a CEO's supervisor. One problem: the board is full of the CEO's buddies, and full of people who either want to become, or already have served as, CEOs. So where do their incentives lie? Should they save the company money and shave $10 million off a compensation package, or should they heap on more cash in the hopes that one day they might benefit, too?

You get the point-saying that the market is a fair arbiter for executive compensation is a joke.

Yet apparently taxpayers only cared once they realized that public money was helping pay these corporate money vacuums known as CEOs. Now Obama wants to restrict those who receive public money to only $500,000 per year, with no bonuses. Harsh stuff, Barack-how will they make the mortgage on their seventh house? This applies only to those companies that are feeding at the stimulus trough, of course. And once this recession is over, there's no indication that any company will bother to restrict salaries to a reasonable level.

Now, I know there are those who think the restriction itself is socialism in disguise. If Manny Ramirez can make $25 million a year for hitting home runs, why can't our top CEOs make as much, if not more, for their talent?

Two reasons.

First, Manny Ramirez actually delivers results. The so-called top CEOs clearly weren't at the top of their management game in the last couple of years. So are they really worth free-agent-level money?

Second, this is just pure greed, and it has no place in a civil society. Somehow the Gordon Gekko philosophy, "Greed is good," became a real mantra rather than a classic movie line (for those born too late for that reference, go Netflix "Wall Street.") Americans are supposed to be for equal opportunity, but they also seem to be for no-limit excess for the haves, and the "it's your fault you don't have an MBA" attitude for the have-nots.

So what's the solution, short of government control of salaries, which nobody wants?

There probably is no solution for privately owned companies, but publicly traded companies are owned, in one way or another, by thousands of people. That makes them quasi-public institutions, so government has some regulatory claim over them. Let's go further than this CEO-maximum-wage proposal for those corporations now on the dole. Extend reasonable maximums (they could even be higher than $500,000) to any public company, and while you're at it, throw in equal pay for women, who still make a fraction of what men make for doing the same job. Only then will false outrage turn into change we not only believe in, but will make a reality.

Tags: COLUMN, JOSH GREEN


Slash everyone's pay, including Josh's, at [email protected] org.



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