Containing CEO Pay: A Case of Government Efficiency (Dean Baker for Truthout)

Containing CEO Pay: A Case of Government Efficiency
By Dean Baker
t r u t h o u t | Columnist

Tuesday 17 April 2007

The public is outraged over the enormous paychecks that are now standard for people who run large corporations. Compensation packages routinely run into the tens of millions of dollars, and it is no longer unusual for a top executive to walk away with hundreds of millions of dollars for their service. In fact, Robert Nardelli, the CEO of Home Depot, got paid $210 million to go away when the company dumped him for his failed turnaround effort. When it comes to CEO pay, it seems pretty clear that corporate America simply has no control.

By contrast, the government is a model of frugality. The president of the United States is paid $400,000 a year. Cabinet secretaries, several of whom oversee departments that spend hundreds of billions annually, earn $183,500 a year. The chief justice of the Supreme Court makes $212,000 a year, about the same as a mediocre lawyer at a mid-size Manhattan law firm.

Whatever one thinks of the current occupants of these positions, no one can dispute that they are generally very accomplished people. And, with perhaps one notable exception, they seem to work very hard at their jobs. In short, the government seems capable of attracting highly qualified individuals for salaries that are often less than one-hundredth as much as they would command in comparable positions in the private sector.

What holds down salaries for the honchos in the government? The answer is simple: democracy. The salaries of government officials are widely publicized, and the public has some control over how much these top officials receive. They compare the salaries of government leaders to the $30,000 to $50,000 that most schoolteachers earn, to the $40,000 that a factory worker might make in a year, or the $20,000 that a custodian or restaurant worker gets paid, if they are lucky. The six-figure salaries (plus benefits) earned by top government officials look pretty good to the vast majority of people who must get by on considerably less. Popular sentiment effectively limits the pay for those at the top in the public sector.

There is no comparable check on salaries for the bosses in the private sector. Effectively, top executives have their friends decide their salaries - corporate boards of directors, or a subset of the board, typically determine CEO pay. These are almost invariably hugely wealthy people who got placed on the board because of their ties to the CEO. They have little interest in holding down CEO pay, nor is it likely to even occur to them that this is an important goal. Corporate boards are rarely embarrassed by having overpaid CEOs. In short, when it comes to CEO pay in the corporate world, there is no effective budget constraint - the sky is the limit. .....(more)

The complete piece is at: http://www.truthout.org/docs_2006/041707C.shtml

Just got the annual report for the company that my wife works for and the CEO makes some 465x what she does. I really feel bad for him having to scrape by on such a paltry amount.

legislation limiting the maximum transfer of wealth in any form to the ceo of not more than 10 times the amount made by the very lowest paid worker anywhere in the corporation.
The Japanese have done quite well with this ratio at 7.
Confronted with the prospect of either restraining executive pay or doing without government contracts the stockholders will force the right thing to be done.