Advertising

The Seattle Times Company

NWjobs | NWautos | NWhomes | NWsource | Free Classifieds | seattletimes.com

Columnists


Our network sites seattletimes.com | Advanced

Originally published June 25, 2011 at 9:57 PM | Page modified June 27, 2011 at 6:18 PM

Jon Talton

Income inequality grows as CEO pay climbs above historic levels

Good corporate governance seeks to align the pay of top executives with the long-term health of the company, its shareholders, workers and even stakeholders. It includes vigorous independent directors, including on the compensation committee, as well as metrics that go beyond short-term performance.

Special to The Seattle Times

quotes Why is it that when executives "negotiate" any salary no matter how large it... Read more
quotes The folks who complain about the redistribution of wealth are oddly silent when it come... Read more
quotes the only hate i see is the hate that the so-called wealthy have toward all other united... Read more

advertising

In 1980, the CEO of a large American company made 42 times the average worker's median pay. Last year, the ratio had risen to 343 times the median.

The data come from the AFL-CIO's analysis of the 299 largest companies in the Standard & Poor's 500 index, but it fits with all independent research — indeed, some studies put the ratio much higher.

Watching the incompetence, shortsightedness and outright frauds that helped bring on the downturn in 2001 and went on to seed the Great Recession, an impartial observer could be excused for thinking that an intern in the mailroom could do a better job. And, for much less.

It's also telling that the executives who built the greatest economy in history, America in the mid-20th century, made far less than their counterparts today. It was also an America where income inequality was low.

GM President Charlie Wilson, he of the often misquoted and misconstrued line, "What was good for the country was good for General Motors and vice versa," was paid $586,100 in 1950. That's about $5.5 million today. His successor, Rick Wagoner, earned $15.7 million in 2007 on the company's way to near bankruptcy and a taxpayer-financed bailout.

Values change, in more ways than one.

But not everywhere. Microsoft's Steve Ballmer made 40 times the median worker's pay in 2010 and Amazon.com's Jeff Bezos 50 times. They stand to benefit hugely long term from stock options, but the compensation message sent to employees and shareholders is important.

Or consider Peter Rose, CEO of Expeditors International of Washington, the global freight-forwarder headquartered in Seattle. Compensated at a rate 197 times the average worker's median pay, he navigated the company expertly through the Great Recession to record profits without a single layoff. Nor does he play games with mergers and the sustainability of the company. Expeditors grows the old-fashioned way: serving customers, bringing in new business.

Alaska Air Group boss Bill Ayer made 101 times the median worker's pay. That's frugal considering the average CEO's reward. More than that, Ayer led Alaska to a turnaround that avoided bankruptcy and saved a local company with thousands of jobs.

Flir Systems, the top-performing Northwest company of the past 20 years, rewarded chief Earl Lewis at a ratio of 161.

So it's impossible to cast every chief executive as a greedy villain, looting the corporate treasury and expecting to privatize profits but socialize losses — although some certainly fit that M.O.

Nationally, too many CEOs have been lavishly rewarded even as they drove their companies into disaster, costing jobs and trillions in retirement savings. Others make out splendidly by finding a merger, even though it killed jobs, innovation and competition.

Perverse compensation incentives were also a major cause behind the crisis that brought the financial system to the edge of collapse in 2008.

Little has changed in the financial sector. Jamie Dimon, of JPMorgan Chase, buyer of Washington Mutual, made 627 times more than the median wages of the average worker.

The system that perpetuates outlandish compensation is far from fixed.

Good corporate governance seeks to align the pay of top executives with the long-term health of the company, its shareholders, workers and even stakeholders. It includes vigorous independent directors, including on the compensation committee, as well as metrics that go beyond short-term performance.

Amazon.com, for example, has what is widely considered one of the best boards in America by the Corporate Library.

The post-recession "say on pay" rule also requires public companies to at least seek an advisory vote from shareholders on compensation. Still, according to Harvard's Forum on Corporate Governance and Financial Regulation, all but 15 of 807 companies holding such votes up to May 6 won shareholder assent, most overwhelmingly so.

Yet the notion that the lavish pay is mostly the result of performance and happy shareholders doesn't track. Even though CEO compensation now stands at its highest in history, the S&P 500 ended last year 19 percent lower than its high in 2000.

An even greater dissonance comes when this is measured against rising income inequality, which is at levels not seen since the eve of the Great Depression, and persistent high unemployment. Wages of average Americans are stagnant and they watch as big companies bank record profits yet do most of their hiring overseas.

It's a problem that's not just hurting millions of Americans and their future. It's doing terrible damage to American capitalism. The honorable exceptions among the chiefs only bring the danger into sharper focus.

You may reach Jon Talton at jtalton@seattletimes.com

News where, when and how you want it

Email Icon




Advertising