Chief Exorbitant Officers

American heads of larger companies are the most outrageously over-compensated people on earth. “In the last 30 years, CEOs have gone from being well-paid (more than 40 times the pay of everyday workers) to being ridiculously enriched. In the United States, CEO compensation now averages hundreds of times the pay of regular working people… AFL-CIO President Richard Trumka noted that since 1982, the CEO/worker pay gap has jumped from 42 times more than the average rank-and-file worker to 2012’s record 354 times greater… That’s an 8-fold increase in 30 years…

“Economist Dean Baker of the Center for Economic and Policy Research in Washington said, ‘The CEOs of large successful companies elsewhere, like Samsung [S. Korea], Toyota [Japan] and Siemens [Germany], get by on a fraction of the pay of their less successful counterparts in the United States.’… Indeed, the stark differences between U.S. CEOs and counterparts overseas seems to show that the disparity between the executive suite and the shop floor isn’t part of the natural order of a free-market system. CEOs’ outrageous pay is more likely a result of the success of CEOs’ political and financial power and the failure of corporate governance in U.S. corporations. For example, compare the average annual U.S. CEO pay ($12.3 million) and average worker pay ($36,000) to a few comparable developed economies: Australia — $4.1 million CEO avg.; $45,000 worker avg. France — $3.9 million CEO avg.; $38,000 worker avg. Japan — $2.3 million CEO avg.; $35,000 worker avg.” Bill Knight writing in PekinTimes.com, May 2nd.

The New York Times surveys show an even greater disparity when you drill down to just the top 100 to 200 U.S. CEOs. “WHEN we made our annual foray into the executive pay gold mine in April, chief executives’ earnings for 2012 showed what appeared to be muted growth on the year. The $14 million in median overall compensation received by the top 100 C.E.O.’s was just a 2.8 percent increase over 2011, the figures showed.

“Well, what a difference a few months and a larger pool of C.E.O.’s make. According to an updated analysis, the top 200 chief executives at public companies with at least $1 billion in revenue actually got a big raise last year, over all. The research, conducted for Sunday Business by Equilar Inc., the executive compensation analysis firm, found that the median 2012 pay package came in at $15.1 million — a leap of 16 percent from 2011... So much for the idea that shareholders were finally getting through to corporate boards on the topic of reining in pay.” New York Times, June 29^th.

Why do we do that? The most obvious answer is that the compensation committees are not really independent, and CEO’s have way too much power in selecting the people who serve as a company’s board of directors. With “compensation consultants” able to point to the general notion of overpayment in the CEO office, that sort of input is pretty much useless.

USC professor of business, Edward Lawler, III writing in Forbes.com, October 9, 2012, dispels a few myths along the way: “Considerable research shows that today’s high level of executive compensation has created an enormous societal gap between the top earners in the country and the rest of the population. Compensation has become so high that it significantly affects the profitability of even relatively large corporations. Perhaps less frequently noted are the pay plans that provide such a big performance incentive for individuals that they can lead people to take risky and even illegal actions in order to make their pay -for-performance compensation plans pay off.

“The standard justification for the high pay of CEOs and other top executives is that the market demands it. It is argued that if you do not pay CEOs at or above the market, they will leave and go to a competitor. There are a number of problems with this argument. Perhaps the most important one is that numerous studies have shown that CEOs rarely move from one company to another, and when they do, they are usually less successful than internal candidates. In short, at least at the CEO level, there is little evidence that an efficient market for talent exists that is based on compensation levels.”

And the overcompensation doesn’t even stop during a CEO’s working years. Fire and retired, CEOs often continue to receive unheard of level of compensation even after they leave: “Professor Kennedy, a co-author of a paperabout this practice with Peer C. Fiss of the University of Southern California and Gerald F. Davis of the University of Michigan, said that more than 60 percent of Fortune 500 companies had golden parachutes in place by 1990. Today, about 82 percent of the chiefs of Standard & Poor’s 500 companies are entitled to some type of cash payment if they are replaced upon a change in control, according to GMI Ratings, a corporate governance firm.

“Amid public anger over ballooning compensation, such contracts often became more complex and opaque. And many companies disputed that current severance payouts or enhanced retirement packages are really ‘golden parachutes,’ designed to offer soft landings in the event of takeovers. However they are characterized, hefty packages for departing executives are still common.  ‘The main reform that I would like to see is not have severance agreements that are soft landings for executives who did a poor job,’ Professor Kennedy said.” NY Times, June 29^th.

As gaping loopholes wider than the Strait of Gibraltar offer companies the ability to shelter income off-shore, and as executive compensation packages offer hidden tax benefits in addition to Scrooge McDuck-level compensation packages, even for CEOs who aren’t really doing well, the unwillingness of Republicans in Congress to tax this excess away at a time when the nation needs the money is unforgiveable. If this country falls apart because it has become polarized at every level, from income and wealth disparity to raw political power, we will have history to let us properly paint the blame!

I’m Peter Dekom, and you would think that some of these mega-rich income gougers would want to take a little less in order to minimize the anger of voters who may someday turn those tables.