The Market Made Them Do It

Sam Pizzigati

Sam Pizzigati Editor, Too Much online magazine

Back in 1999, near the dizzying height of the dot.com boom, no executive in Corporate America personified the soaring pay packages of America’s CEOs more than Jack Welch, the chief exec at General Electric. Welch took home $75 million that year.

What explained the enormity of that compensation? Welch didn’t claim any genius on his part. He credited his success, instead, to the genius of the free market.

“Is my salary too high?” mused Welch. “Somebody else will have to decide that, but this is a competitive marketplace.”

Translation: “I deserve every penny. The market says so.”

Top U.S. corporate execs today, on average, are doing even better than top execs in Welch’s heyday. In 1999, notes a just-released new report from the Economic Policy Institute, CEOs at the nation’s 350 biggest corporations pocketed 248 times the pay of average workers in their industries. Top execs last year averaged 312 times more.

What explains this growing generosity to America’s top corporate chiefs? Today’s apologists for over-the-top CEO compensation, like Jack Welch a generation ago, point to the market.

One leading critic of these apologists, the Dutch management scientist Manfred Kets de Vries, neatly summed up this market world view earlier this year: Big CEO pay packages “reflect market demands for a CEO’s unique skills and contribution to the bottom line.” Mega-million executive paychecks “merely represent the market forces of supply and demand.”

“CEOs who cheerlead for market forces wouldn’t think of having them actually applied to their own pay packages,” as commentator Matthew Miller has noted in the Los Angeles Times. “The reality is that CEO pay is set through a clubby, rigged system in which CEOs, their buddies on board compensation committees and a small cadre of lawyers and ‘compensation consultants’ are in cahoots to keep the millions coming.”

“CEO compensation,” agree Lawrence Michel and Jessica Schieder, the authors of the new Economic Policy Institute executive pay report, “appears to reflect not greater productivity of executives but the power of CEOs to extract concessions.”

If CEOs earned less, the pair add, we would see “no adverse impact on output or employment.” Instead, they go on, lower executive paychecks would mean higher rewards for corporate workers, since the huge paydays that go to CEOs today reflect “income that otherwise would have accrued to others.”

How could those “others,” the rest of us, best go about lowering CEO compensation? Michel and Schieder offer a variety of promising proposals, ranging from higher marginal income tax rates to higher corporate tax rates on companies with excessively wide CEO-to-worker compensation ratios.

And what might a reasonable CEO-to-worker pay ratio be? The new Economic Policy Institute research suggests one plausible goal. Back in 1965, Michel and Schieder calculate, America’s top execs only pulled down 20 times more pay than the nation’s average workers.

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Reposted from Inequality.org

Sam Pizzigati edits Too Much, the online weekly on excess and inequality. He is an associate fellow at the Institute for Policy Studies in Washington, D.C. Last year, he played an active role on the team that generated The Nation magazine special issue on extreme inequality. That issue recently won the 2009 Hillman Prize for magazine journalism. Pizzigati’s latest book, Greed and Good: Understanding and Overcoming the Inequality that Limits Our Lives (Apex Press, 2004), won an “outstanding title” of the year ranking from the American Library Association’s Choice book review journal.

Posted In: Allied Approaches

Union Matters

Raise the Wage!

From the AFL-CIO

It’s been a decade since the federal minimum wage was increased—the longest period in American history without an increase. In that time, the cost of living has increased and working families have struggled to make ends meet. The Raise the Wage Act would finally bring the federal minimum wage up to $15 an hour.

The House of Representatives is voting tomorrow on the Raise the Wage Act, and we need to make sure lawmakers know where workers stand. Will you show your support and ask your friends to call their representatives?

One in 9 workers in the U.S. is in poverty—even when working full time and year-round. Passing the Raise the Wage Act as it stands would empower working families in need and build an economy that works for everyone.

Share our #RaisetheWage message on social media right now.

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