executive pay

[Doug Henwood]

Today's Financial Times has an article by reporter Tony Jackson, "The fat
cats keep getting fatter," on the worldwide boom in executvie pay. It's
decorated by a chart of the ratio to CEO to average manufacturing worker
pay as estimated by the consulting firm Towers Perrin. Looking at the chart
(numbers below), Jackson generalizes:

"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