Monday, December 26, 2005

The Hard Lives of CEOs

Long working hours, little respect. Who would want to run a company in such a world? Well, there are compensations. One is the weird fact that firms which might be doing very poorly for their workers are not always so niggardly with their managers:

A typical chief executive at the biggest U.S. companies was last year awarded $5.74 million of compensation, 30.2% more than in 2003, according to a survey released by the Corporate Library, a corporate governance research group in Portland, Maine.

The average CEO at companies in the Standard & Poor's 500 index was paid even more — $11.71 million.

The median increase was more than nine times last year's 3.3% rise in U.S. consumer prices, and double the 15% increase a year earlier. The average increase was 91%, a number distorted by the 27 CEOs whose compensation swelled more than 1,000%.

"We're seeing the kinds of pay increases we saw in the 1990s," said Paul Hodgson, senior research associate at the Corporate Library, in an interview.

Yet these firms didn't all have such great years. Hmmm. I bet you anything that the average worker of these companies didn't see thirty percent rises in their pay packets. A lot of them probably didn't even see the boot that kicked them in the ass.

But what about the high taxes these executives must pay out of their swollen salaries you might ask. Well, even that has been made a little easier:

More than half the nation's largest companies are giving their top executives extra money to pay taxes due on corporate perks such as luxury cars and even on capital gains, according to a published report.

The Wall Street Journal reports that a study the paper ordered from compensation-research firm Equilar Inc. found that 52 percent of the nation's 100 largest public companies revealed that they gave the extra payments to cover taxes, known in the industry as "gross-ups," to one or more top executives last year.

Most of those disclosures are buried in footnotes or attachments of other filings with the Securities and Exchange Commission and are not easily apparent, according to the report.

That practice is spreading, the paper reports, as only 38 percent of the companies made those kinds of payments in 2000.

While some of the payments were only a small portion of executives' pay, other senior managers received millions.

I want to share their pain, I do. To first read about Christmas in New Orleans and then this!

The wingnut response to my criticisms would be an appeal to the Almighty Market (the wingnuts have two religions, one believes in an angry fundamentalist guy and the other one believes in the invisible hand, or claw, as the case might be), and it would go something like this: "If the CEOs get these kinds of salaries it's what they must be worth in the Market. If they didn't deserve these kinds of salaries the firms they run would get rid of them. As they haven't done so it means that the CEOs are worth their remuneration. They worked hard and deserved it."

This is an answer worth an "F" grade, unless the markets we are talking about are perfectly competitive, which means that the products traded should be very homogeneous, information should be near-perfect and the number of firms should be quite large. The industries in which these CEOs operate don't satisfy these conditions. For example, the international petroleum industry is an oligopoly (with just a few large firms), and firms like Exxon have price-setting powers. Besides, they are in bed with the government which isolates them from the limited market pressures they'd otherwise have. No, economics doesn't absolve anything here.

Then there is the whole moral question: How can anyone really argue that one person is worth this kind of money for working very hard when some other person is working two or three jobs and barely staying alive?

I'm not advocating communism. I appreciate the incentive efforts that exist within a modified capitalistic society. But I'm also acutely aware of the societal problems that enormous income inequalities create. Do we really want to create a country in which the rich must live in gated communities with armed guards because they fear the large hungering masses? Yet this is the direction in which we are heading.