In 1960, corporate chief executive officers each earned about twice as much as the president of the United States. Today, they earn 62 times as much as the president of the U.S., at least according to Harvard Business School Professor Rakesh Khurana.
But he’s wrong. In 1960, the president made $100,000 (doubled in 1969 and doubled again in 2001 to $400,000). Multiplied by 62 that would bring a CEO’s take-home pay to $24.8 million. A few CEOs’ total compensation packages reach the financial stratosphere before the IRS takes its share. But these are hardly average.
John Mack, the new Morgan Stanley CEO, originally demanded a two-year compensation deal no less than the average received by CEOs at Goldman Sachs, Merrill Lynch, Lehman Brothers and Bear Stearns. The $25 million figure triggered such a boardroom hubbub, Mr. Mack settled for a little less.
If the AFL-CIO became little more than an ATM machine for the Democratic Party, Wall Street seems to be an ATM machine for financial services executives. The Wall Street Journal says the gap between CEO pay and the earnings of just about everyone else — except investment bankers and hedge-fund managers — keeps growing alarmingly. In 2004, the median salary and bonus for CEOs soared 14.5 percent, while paychecks for salaried employees averaged a 3.4 percent increase.
Nonperforming CEOs who lose the confidence of the boards also do very well. The golden parachutes are worked out before they even start work at the top. Morgan Stanley CEO Phil Purcell’s severance and retirement cushion were worth more than $100 million, including a $44 million cash bonus that came with the pink slip. Hewlett-Packard’s Carly Fiorina’s walking papers were worth $14 million, plus a $7 million bonus and $23.5 million in stock and pension payouts.
Fed Chairman Alan Greenspan, hardly a leftist agitator, warned against the largest disparity between wage earners and high-income executives since the “Roaring 20s,” which he described as “a very disturbing trend.” William J. McDonough, chairman of the Public Company Oversight Board since 2003, and president of the New York Federal Reserve Bank for the previous decade, called the yawning gap “the single most important issue” in today’s America. Hello. Is anyone listening? Income disparity is now wider than anywhere in the European Union or Japan, and can only be found in Third World countries.
Mr. McDonough, 71, told BusinessWeek, “When I was a kid, everyone was convinced you could become president, or head of the First National Bank of Chicago. But now there’s a sort of feeling that there are fat cats protecting themselves and ‘gee, my kid can’t get into that group.’ That’s a terrible message, but it is the message the average American is getting. Breaking the connection between the wealthy and the rest of us would be a great disservice. I tell business leaders, ‘You can’t afford this rupture between yourself and the American people.’ ”
Christopher Cox, a prominent Republican who has become the new chairman of the Securities and Exchange Commission, also fired a warning shot across the bow of USS Gravy Train. He plans to give investors more information about executive pay.
The gap has also set new records — and keeps widening. Over the last three decades, the share of national income going to the top 1 percent of households has almost doubled — from 7.7 percent to 14.7 percent. It reached 20 percent in 1928, the year before Wall Street’s grim reaper brought on the Great Depression. Sliced another way, between 1979 and 2000, real income of the poorest fifth rose 6.4 percent while the top fifth shot up 70 percent.
Many executive suites broke open the champagne when labor unions went through their biggest schism since the 1930s. Boardrooms no longer had to worry about unions shutting anything down. Only 1 in 8 workers is unionized, down from 1 in 3 a half-century ago.
Tens of millions of women going to work have increased family incomes, but this is a one-time boost. In recent times, pressure also eased a little from home sales and mortgage refinancing, but prices will level off — or the bubble will burst.
Hundreds of thousands of jobs have been outsourced as globalization closes plants that then reopen in China, India, Thailand, the Philippines, Malaysia, Indonesia, the Middle East, North Africa and Latin America. Unskilled workers have taken the biggest bath. Many must shoulder second jobs to make ends meet. Services and technology are only accessible to skilled workers. But China and India are now increasingly competitive even for engineers and scientists.
In corporate fraud investigations, Joseph T. Wells, a CPA and former FBI agent, now chairman of the Association of Certified Fraud Examiners, says the Sarbanes-Oxley Act, designed to discourage financial shenanigans in the boardroom, does not address a top executive’s private finances. Members of Congress who passed Sarbanes-Oxley are compelled by law to disclose their private finances. The executives who are responsible to countless millions of investors and who manage trillions of investors’ dollars can tell snoops to lump it.
What is happening on Executive Row is guaranteed to produce a backlash of labor militancy as dissident unions open a drive for new members — with a whiff of class-warfare grapeshot.
Arnaud de Borchgrave is editor at large of The Washington Times and of United Press International.