"The countries at the top of the scale tend to be comparatively poor, while those at the bottom are mostly rich.... Scramingly high inequality in pay, as in Latin America, is associated with poverty and social division. Relative equality, as in Sweden or Germany, is associated with wealth but a high level of state involvement in the economy. It might be thought that the UK and US, sitting as they do somehwere in the middle, have it about right [of course - DH]. But this dodges a more disturbing question: why, in these countries, are the differentials widening over time? [...]
In cynical terms, CEOs are paid today according to their ability to maximize returns to shareholders, and minimise those to workers. Back in 1982, US corporate profits as a proportion of the corporate wage bill hit bottom at 12 per cent. The figure is now 23 per cent, and climbing.
In the same period, the Dow Jones Industrial Average has risen from 1,000 to 9,000. Hence the explosion in compensation for US CEOs.
But corporate profits cannot keep rising indefinitely relative to everything else. Nor can the stock market.
When the music finally stops, so will the boom in executive pay. On balance, it is hard not to feel that will be a good thing. And with luck, it will come in time to limit the damage to society."
CHIEF EXECUTIVE COMPENSATION AS MULTIPLE OF AVERAGE FACTORY WORKER mid-sized firms
Venezuela 84 Brazil 48 Hong Kong 43 Mexico 43 Malaysia 42 Singapore 35 Argentina 30 U.S. 24 S Africa 23 Australia 19 UK 18 Italy 16 France 15 Spain 15 Netherlands 14 Belgium 13 Canada 13 Germany 11 Sweden 11 Japan 10 Switzerland 10 N Zealand 9 S Korea 8
source: Towers Perrin, quoted in Financial Times, August 1, 1998
Doug