The problem with such polarized views coming from the left and right is that it becomes impossible to have a reasoned, serious conversation and analysis of executive compensation in any sense.
But let me take a stab at leveling it out, speaking as a business analyst with 15 years of experience in corporate America, but simultaneously a progressive view of social responsibility and socially responsible corporate AND individual behavior...
First, a couple of assumptions need to be straightened out... The top 1% are households earning more than $330,000 a year. The top 10% are households earning more than $100,000 per year. The top 20%? $88,000. Again this is household, not individual data. If you and your wife each earn $45,000 you're in the top 20%. The top 1% encompasses a LOT more than executives... there are many working people, engineers, doctors, software developers, who fall into this category and work many many hours... so it's simply not sensible to automatically vilify these people (and just to be clear, I'm NOT in the top 1%, but I'm also not in the bottom 50% and I work more than 60 hours a week)...
On the other side of things, two things are true, based on actual data from the US Census bureau and surveys of major corporations:
1. Employee salaries since 1965, inflation adjusted, have barely doubled.
2. CEO salaries since 1965, inflation adjusted, have increased 600%.
Recent research has in fact shown that the salaries paid to US CEO's are quite frequently well above what the required market rate is to attract and retain them.
It isn't good for shareholders, consumers or the public at large... and it's also deleterious to the CEO's themselves in more ways than one: Would I want to be Richard Fuld or Angelo Mozilo? Two people known for managing their companies' assets into the toilet, with maybe a ton of money but little more to show for it than being despised, unhireable and having a really bad tan? I have priorities. But, all appeals to emotion aside, this simply doesn't make financial and economic sense by any stretch of the imagination.
... again, I'll reiterate that I'm a business analyst. I analyze and forecast for a $400 million business unit of a $4 billion software company. Many CEO's took a cut in 2009, seeing median compensation drop from $8 million to $6.6 million... total compensation (salary, bonuses, etc.) Think of the statistical spread from highest to lowest, and this is a marked shift. This is due to increasing pressure on boards of directors to curb undue compensation given despite poor performance. Everyone's tightening their belt.
Now, stay with me... let's not unravel into a class argument. The topic of discussion here isn't employee dissatisfaction (which is understandable, but a separate debate from ascertaining appropriate compensation at every level of managerial hierarchy).
Median salary remained relatively unchanged from 2008 to 2009, at $1 million. The highest base salary in that year was John Stumpf's, Wells Fargo, at $5.6 million, or nearly six times the median, whereas Robert Iger's base salary from Disney is about $2 million, or twice the median.
Taking into account that Disney is a much bigger, more complicated enterprise than many corporations that are part of the data... but let's look at two things: Bob Iger, Disney CEO. Bob Iger, Director, Apple Inc.
As CEO of Disney, Iger returned the company to health following Eisner's exit and grew operating cash flows from $5.7 billion in 2008 to $6.9 billion in 2011. While current liabilities incurred over this period increased about $400 million (the leverage to produce some of the operating cash flows), operating cash flow grew by more than a billion dollars, long term debt shrank by more than $100 million (and the interest expense along with it) and retained earnings grew by a staggering $10 billion. The cash engine that Disney is has kept going and in the process has managed to keep people employed in relatively uncertain times.
So relative to his salary, Iger has been responsible for engineering a pretty good financial turnaround for Disney and steering the ship very well. $29 million in total compensation, of which about $20 million came in the form of RSU's and non-equity incentive plan compensation (performance related bonuses).... rather than being mostly options (play money) that encourage malfeasant manipulation of the stock price without necessarily improving the company's financial position to the benefit of the entire employee base.
So what about Bob Iger, Apple Director? $50,000 salary for a position on the Board of Apple is pretty reasonable when you consider that far smaller companies with far worse financial positions have paid $20-$25,000 for directorships with very minimal oversight. Apple and its employees are getting a very good deal out of Iger's guidance in exchange for that $50,000.
I know how much the lower level executives at my own company work, days, nights, weekends, etc. and how much more heat is on their heads for failing to perform even within a span of a couple hundred customers out of a 50 million customer base. It's a degree of responsibility and pressure that most employees will never have.
Are there employees who work long, hard hours? Sure... And many of them are not paid enough. Totally agree. But to have an honest conversation about how much they should be paid, and how much an executive should be paid, it's important to understand there's more to work than physical stress and effort.
There are skill sets I possess that some people, no matter how hard they try, or how many hours they put in would not be able to do this job... and the same for many other people. So part of what people get paid for is the uniqueness of their ability. Another part is the degree of accountability. A guy who works on the assembly line can do a good job or a so-so job and go home at the end of the day and all he's accountable for is his work. A CEO can't get away from this... and yes, while there are some CEO's who spend their days at the golf course, these CEO's don't make it to the top of the pyramid.
Steve Jobs and Larry Ellison are among the highest compensated CEOs of last year, and I guarantee that they set an example for other CEO's who behave more like clock-punching losers than these two entrepreneurs. But imagine you started a business... just, forget about scale for a second. How do you create incentives to get third party managers to care about your creation with the same degree of passion you have? It's not easy. This is why many silicon valley entrepreneurs top the temporary CEO's by leaps and bounds in terms of what they accomplished and how they'll be remembered. You think anyone would hold vigils for Angelo Mozilo or Richard Fuld? Fuld and Mozilo know DAMNED well that nobody would waste the spit on their graves.
Is that comforting to the people whose lives have been altered by their malfeasance? Hardly. But what can you do? Well, two things:
1. Since the SEC regulates corporations and is the organization that motivates quarterly rather than long term thinking, they may need to revisit FASB reporting requirements.... living for the quarter is not enough.
2. Since the government recognizes public corporations as individuals, the government has some say in what they should require of the compensation committees of Boards of Directors, independence from the executives on the board for a start, and could set oversight requirements that, if not met, would strip the corporation of its legal individual status and hold board members and executives directly accountable to a greater degree than Sarbanes Oxley does.
3. Shareholders and boards should look at the very successful models of compensation of certain companies, like Apple and Berkshire Hathaway, to see how much more incented managers are toward long term growth when they utilize slow-vesting RSU's and conditional bonuses... and a third option, risk-weighted compensation whereby a CEO who achieves a 5% return by exposing the company to significant leverage risk is paid less than a CEO who achieves a 5% return with only the operating cash and retained earnings on hand... while still keeping the rest of the company's books in the green.
In order for businesses to survive into the 21st century, much of this is going to happen naturally... by market selection but also by the people's counterbalancing mechanism: Government oversight.
Before anyone on the left or right screams bloody murder at one another, know that you're both partly right. But consider this: What we have had for 40 years of continued corporate profit growth with tax rates at a 40 year low and payrolls stagnating is not really free market capitalism. On the contrary, there have been numerous subsidies given to corporations ("supply side economics") which simply do not work. Survey any person who actually manages the operations of a large company and they will tell you that lower taxes never made them go out and hire people. DEMAND must increase, so if anyone's lower taxes would stimulate demand, it would be the middle class who do SEVENTY PERCENT of consumer spending.
It wouldn't be me... I make enough that my DISCRETIONARY income (disposable minus expenses) is more than what most people's entire disposable income (income after taxes) is for them to live on. Lowering my taxes won't change my spending habits much. But for people who are living paycheck to paycheck, it can make a dent... and it benefits people like me whose jobs DEPEND on that demand.
Why do people not understand this? Either because they aren't grasping basic economics/finance/math or because they're being willfully ignorant just so they can hold fast to ideological (read: nonsensical) thinking.
At the same time, overturning the entire system is not the solution. Human nature doesn't disappear, greed doesn't stop functioning, in a socialist system or any other system... and most of the European countries that progressives admire are not socialist. Of the nations that surpass the US on the Index of Economic Freedom (ironicallly published by the Heritage Foundation, a conservative "think" tank), all of them are capitalist economies. Yet all of them have some kind of social infrastructure. So do we. This hybrid system is the most free, and by far the most successful at evening the playing field, when state resources aren't used to manipulate supply OR demand, but instead provide basic infrastructure like education and healthcare which ensure the long-term survival and productivity of a healthy middle class upon which the entire economy rests.
If you throw out the entire system, rather than identifying what measures can be taken to ensure free market capitalism while mitigating disproportionate corporate influence on society with the counterbalance of SOME government oversight to prevent a systemic collapse (even Greenspan admitted that loosening regulations contributed to the financial morass, now that he is retired and can't take the heat for it, despite his years of parroting the line of deregulation... the markets failed to regulate themselves and put everyone, including themselves, in the toilet).
If government HADN'T intervened, the global market was within hours of a $500 trillion meltdown. And trillions have already been lost... and people at the top are aware of this, and they're scared to death of what the people at the bottom will do to them if they keep biting off more than they can chew. I guarantee you this... Even luxury spending has taken a huge hit. Not that that is anything more than a "first world problem", but I'm just illustrating that things are in fact changing.
But we need to have some perspective on what really are the optimal solutions. Blindly overturning a system is just as bad as maintaining the status quo... and even more hurtful to people's morale because the new system, if left equally unchecked, will consist of the same self-interested people both at the top and the bottom, and the outcome will in the end be the same. This is a system that works marvelously when it is moderated well... and facilitating more access to information, and more social, political and religious freedom than many other systems in modern civilization's entire history.
), Arthur Levenson (Genentech, cutting edge medical/scientific).
