Though executive pay cuts may not get to the root of the problem, Clyde Prestowitz explains why they are a step in the right direction.
The editors of The National Review Online discuss why the love of power can be just as dangerous as the love of money.
Government action to rein in runaway pay at the upper reaches of the financial institutions bailed out by taxpayer dollars not only is appropriate but also is overdue. For years, CEOs have been aided and abetted by compliant boards of directors in a game of "heads I win, tails you lose" that has enabled them to claim an ever-growing share of the national pie. In this game, CEOs' compensation rises whether the times and their performance are good or bad.
The grand masters of this destructive game are in the financial sector, where CEOs are paid more than in any other sector and where their increasingly risky choices brought about the massive financial collapse that has caused savings to vanish and sparked a global recession. Now, with millions of Americans facing the worst economic conditions in over a half-century, it is certainly reasonable to expect that these financial elites have their pay reeled in and set so they won't have incentives to crash the economy again.
The problem goes beyond finance. By any reasonable standard, the U.S. overpays its CEOs. In 1965, the average CEO was paid 24 times as much as the average worker; by 2007, that ratio had ballooned to 275 to one. In other words, it takes the average worker a full year to earn about what the average CEO is paid in one workday. This gap is far wider in the U.S. than in any other advanced economy.
Too much of corporate America has fallen under the spell of the cult of the CEO, and something has to be done to restore sanity. Every year, CEOs' pay consumes a larger share of corporate profits. That means the earnings that could be reinvested in R&D, new products and more jobs are instead enriching the lives of the already rich. The business of business is now less about business and more about providing for the CEO and other top-paid corporate staff.
Courtesy of the Economic Policy Institute
Lawrence Mishel is president of the Economic Policy Institute.
Lawrence Mishel is president of the Economic Policy Institute. Courtesy of the Economic Policy Institute
Critics of the government's action say it is government over-reaching. But how is it over-reaching for the government to impose consequences for corporate behavior that nearly toppled the nation's economy, or to demand accountability for the taxpayers' dollars those companies still hold? What would we think of a government that didn't attach such strings to this massive bailout?
Others say it's more talk than substance and won't have an effect on the overall excesses of CEO pay. But that view underestimates the power of words to reset the moral meter, a change that's long overdue. If you want proof, just consider Marie Antoinette.
Shaming CEOs over their excesses hasn't worked. Public anger is not sufficient. It's a welcome sign to see our government taking action to stem the rising tide of CEO excess in the heart of the worst of that excess. The last thing we need now is business as usual.
Lawrence Mishel is president of the Economic Policy Institute and principal author of The State of Working America, an authoritative volume on American's living standards.