It’s that time of year again, when executive pay league tables hit the headlines and set off a chorus of union leaders, professors of ethics and the plain jealous who yowl about fat cat pay.
The Monks Partnership issues the most-watched listing and has given The Observer a sneak preview. This year, the finger-waggers won’t be disappointed. The bosses’ pay is up by an average 9 per cent over last year’s 546,000, excluding share options. Take away inflation and that’s three-and-a-half times the percentage pay hike for the average British employee.
Now stop your whingeing. Next to US fat cats, British executives are skinny little kittens.
Let’s compare. America has Sandy Weill of Citigroup, who earned $166 million while the total return to his shareholders for the year was, ahem, negative 6.8 per cent. And Disney’s Michael Eisner scored $576m while the company’s shareholders scored a 5 per cent loss.
Mercer & Co, which calculated the American figures, has found that US top executives pull in bonuses four times as fat as those received by their British confreres. US share options exceed Britain’s by 5,900 per cent.
Curiously, leading the pack of Cassandras against ballooning pay are these very ‘remuneration advisers’ such as Monks and Mercer hired – and generally ignored – by corporate compensation committees. On both sides of the Atlantic, these professional scolds grouse that big paydays have no relation to a company’s performance against industry competitors.
But the consultants have it upside down. The last thing the owners of industry want is competition.
The cry to cut the big shots’ pay or tie it to performance displays a deep misunderstanding of what today’s executive does to earn his daily crust and what the owners of industry expect of him.
Just who are the owners? Eighty-two per cent of corporate stock in America is held by the wealthiest 10 per cent of families. But over half those shares, the controlling stake, is owned by the richest 1 per cent alone. The membership of this One Per Cent Club has expertly diversified portfolios and trusts. They own GM and Ford, Monsanto and its ‘competitor’ Dow Chemical. Ergo, they don’t care which horse wins the race because they own the whole race track.
So what does the Wealthy One Per Cent want? Answer: more wealth. Where will they get it? As with a tube of toothpaste, they are squeezing from the bottom.
In 1983, the One Per Cent possessed 33 per cent of America’s wealth as measured by net worth. By the end of the Reagan and Bush years, the wealthiest had increased their share of the national economic pie to 37.4 per cent. But under Bill Clinton, the One Per Cent’s ownership increased to 40.1 per cent of America’s net worth.
Calculating from government statistics, this shift of wealth moved more than $1.729 trillion ( pounds 1 trillion) – from the Ninety-Nine to the One. However, over the period from 1983 until now chief executives’ pay at the top 350 US corporations totaled less than $20 billion. In other words, chief executives received barely 2 per cent of the transfer of wealth from the lower orders to the upper stratum. That is chump change – an insult really – for these victorious generals in the class war.
And class war is what it is. In 1973, notes New York University’s Edward Wolff, median household income was $34,900. Twenty years later, income was down to $33,900 on a constant dollar basis.
To pay for the America way of life, ‘the middle class is mortgaging itself to death’, says Dr Wolff, with 60 per cent of the public seeing a decline in net worth.
For two decades to the early Nineties, productivity rose while real pay fell. In the last couple of years, real pay is finally rising again, but nothing close to the jump in productivity.
This wealth shift from producers to owners did not occur by accident. Class warfare is hard work. A chief executive may no longer waste time fretting about new product introductions, production bottlenecks or market share in Zimbabwe. All that rug-merchant managerial stuff is left to the MBAs three levels down the pyramid.
Today’s class warrior chiefs have a tougher job. In Britain, for example, they must sit through interminable New Labor Task Force meetings. Executives spend their days as super-lobbyists and deal-makers – and in this new role, they are under-compensated.
Rentokil’s Sir Clive Thompson led the CBI’s successful charge to keep the minimum wage below pounds 4. The savings to corporate Britain totaled easily pounds 4bn a year, justifying a thousand times over Thompson’s pounds 3.7m one-year gain on share options.
O NE perennial campaigner against big executive pay is William Patterson of the AFL-CIO union federation’s Office of Investment in Washington. Patterson’s target, Michael Eisner, earns more in 15 minutes (at $270,000 per hour) than Patterson does in a whole year.
But Eisner has kept Disney World relatively union-free. So who’s overpaid here? Patterson the griping loser or Eisner, Caesar of union busters? Let’s face it – who got the job done?
And it’s a big job, tilting the socio-political playing field. Displaying awesome class solidarity, corporate chiefs blocked popular Democratic plans to require employers to provide medical insurance. Keeping 42 million US workers and dependants uninsured saved shareholders a quarter of a trillion dollars since the Business Roundtable killed the plan in 1993.
These guys are worth it – even Sandy Weill who saddled his shareholders with a negative return last year. By merging Traveler’s Group with Citicorp, Weill broke down the walls between commercial banking, investment banking and insurance that even a Republican Congress feared to touch.
Sticklers for legal niceties howled that this violated the spirit of US law, if not the letter, and created a frightening concentration of financial power. In other words, Weill’s act was ruthless and so big it was unstoppable. To the One Per Cent, ripping the limbs off government regulation has to be worth fifty times Weill’s $166m pay cheque, despite short-term losses.
Of course, there are killjoys who cling to that Calvinist-Marxist belief that a system generating ever-fattening executive pay and riches for the rich cannot continue without end. Professor Michael Zweig, an economist at Stony Brook University, put it in culinary terms: ‘Today’s pig is tomorrow’s bacon.’
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Gregory Palast’s column “Inside Corporate America” appears fortnightly in the Observer’s Business section. Nominated Business Writer of the Year (UK Press Association – 2000), Investigative Story of the Year (Industrial. Society – 1999), Financial Times David Thomas Prize (1998).