U.S. Pay Gap: A Problem or Just a Fact?

This has nothing to with energy but I was amazed to read a recent WSJ report stating that “Executives and other highly compensated employees now [2007] receive more than one-third of all pay in the U.S.” And that doesn’t even include equity-based compensation like stock options which is often a huge percentage of total executive compensation!

It seems to me that American society is being increasingly polarized both politically and financially, and that the two are related. Not that the rich are in one political camp and the just-getting-by in another. Rather, it seems to me, the difference is more how you feel about the financial polarization than what pole you are in that determines your political outlook. People who think this trend is just fine (and some who feel that way don’t make the big bucks) tend to be Republicans and some who feel that it’s a problem and that taxation aught to be more of an equalizing force tend to be Democrats.

You can put me in the latter camp for a number of reasons. First, I think it’s socially unhealthy for the great mass of Americans to be increasingly on the edge of their financial seats while a huge number of business leaders (along with “public personalities” in sports and entertainment) are compensated so generously that they have little basis for sympathizing with the every day problems of so many others. Some overcompensated executives sometimes sound like Calvanists (especially in private conversations), having come to believe they are a superior being to most “workers” and are fully entitled to a life of financial plenty while others live in poverty. Such thinking contributes to social discord and disunity. If it becomes sufficiently extreme, it can lead to - and has lead to - social revolutions such as the French Revolution.

Secondly, I think executive compensation is a corrupt system in which buddies on different boards all stick up for each other’s pay checks. Hardly any directors of public companies have the guts to challenge CEO and other top executive compensation. To do so would be to acquire an “odor” among the business elite. It would paint the renegade director as someone who’s “socialist beliefs” are suspect and unreliable - not necessarily aligned with those of the business elite, but rather with the “stockholder.” Who would have ever thought that being pro-stockholder could get someone blackballed from the U.S. corporate club? But that seems to be the case today, and I think such a mind-set itself is very unhealthy for American corporations.

Thirdly, I think the huge levels of corporate compensation contribute to the domination of Congress by an increasing multitude of businesses. A good part of executive compensation - along with corporate lobbying funds - increasingly finds its way to politicians. Anyone who thinks that money buys only “access” and not results when applied to Congress is very naive, I think. A corrupt political system is inherently less stable and I think the U.S. system is becoming more and more corrupt every year as corporate lobbying grows inexorably stronger.

In my view, American business has become sick and the symptom is run-away compensation. It’s no wonder that in such an environment there are opportunities for leveraged buyout firms (and the occasional benevolent controlling stockholder such as Warren Buffet) to operate very successful enterprises. Such businesses are operated for the benefit of shareholders. Meanwhile, a lot of the competitors to such businesses have the equivalent of one arm tied behind their back - an arm that manipulates a bloated salary structure.

Comments

[YoYoMama:]

"In my view, American business has become sick and the symptom is run-away compensation..."

HERE HERE!!

When my husband worked at Hewlett-Packard (formerly COMPAQ) years ago they instituted a round of layoffs. The execs at the top took NO paycut or layoff, while cutting thousands of "underling" jobs. The customer service department was wiped out and sent to India. The company then had the gall to bring their Indian counterparts to Houston, where the American team had to train the Indian team to take over their jobs.

Want to see some sanity in the markets? Honest business practices? To see the middle class flourish? Company profits sor? Employment increase? Institute reform in executive compensation.

It would not be popular and would be heavily lobbied against, but your average American worker would be ROTFLMAO happy. They might actually have increased wages and job security - which was the state of America before executive compensation become the runaway train it is today.

Jul 23 11:23 AM

[Alan Young:]

BRAVO!
This trend has been going on for some time, but it has gotten way out of hand, and must reverse. For the rich to skim 5-10% of society's wealth is understandable (if annoying), but 30% is ridiculous and unsustainable.

Jul 23 11:43 AM

[Barbarous R...:]

Perhaps those who feel that executives and professional athletes/entertainers are overpaid should just go out and get jobs as executives and professional athletes/entertainers. Share in the windfall. How hard can it be?

Alternatively, you could simply boycott the products/services offered by the companies overpaying these executives. Once the companies are out of business, these executives will get what they deserve. It's that simple. Customers are the ultimate bosses.

Similarly, boycott the performances of the overpaid professional athletes/entertainers. I suspect their paycheques will be hurt somewhat when they no longer have an audience.

But then again, I suppose it's just easier to convince government to "reform" compensation -- i.e. tell employers what they can and can't do with their own money.

For the record, I'm not an executive. Nor do I have any particular athletic or entertainment talents. But I do believe in freedom. And if someone strikes a lucrative deal with their employer -- I say "good for them". It's frankly none of my business.

Jul 23 06:09 PM

[YoYoMama:]

You'll feel differently when you work your arse off for a company, only to get laid off, while the folks at the top who got your company into its mess keep their jobs and get bigger bonuses for kicking your arse out the door.

The disparity between the haves and have nots in this country keeps growing because those at the top get more at the expense of those at the bottom.

It's freedom for the elite, but not for the middle and working class. If that's your definition of freedom, congratulations. You got it!


On Jul 23 06:09 PM Barbarous Relic wrote:

> Perhaps those who feel that executives and professional athletes/entertainers
> are overpaid should just go out and get jobs as executives and professional
> athletes/entertainers. Share in the windfall. How hard can it be?
>
>
> Alternatively, you could simply boycott the products/services offered
> by the companies overpaying these executives. Once the companies
> are out of business, these executives will get what they deserve.
> It's that simple. Customers are the ultimate bosses.
>
> Similarly, boycott the performances of the overpaid professional
> athletes/entertainers. I suspect their paycheques will be hurt somewhat
> when they no longer have an audience.
>
> But then again, I suppose it's just easier to convince government
> to "reform" compensation -- i.e. tell employers what they can and
> can't do with their own money.
>
> For the record, I'm not an executive. Nor do I have any particular
> athletic or entertainment talents. But I do believe in freedom.
> And if someone strikes a lucrative deal with their employer -- I
> say "good for them". It's frankly none of my business.

Jul 23 06:47 PM

[Barbarous R...:]

Actually YoYoMama, I did "work my arse off for a company", got laid off, spent 18 months out of work, and then got a better job -- less money, but more enjoyable.

Doesn't change my view. The owners of the company have the right to hire managers, who among other things are given the job of hiring and firing as they see fit. I didn't agree with my being laid off, but it was their right to do so, And if the owners are not happy with the performance of the managers, the managers themselves will be fired. If the company doesn't perform adequately, the owners' face a loss on their investment. Everyone is motivated to perform.

May not be palatable to all of the people all of the time, but it sure beats the alternative of having government mandate who can be paid what, and who can be hired or fired and when.

Jul 23 07:00 PM

[Brad Denny:]

Barbarous R's economic theory is fine in theory and works quite well as long as there is a reasonable balance of power between the various players in the marketplace. There is no reasonable balance of power ion today's marketplace. According to a New York Times story this morning, the majority of all trading volume on the stock exchanges is now conducted by big institutional players like Goldman Sachs employing computerized trading programs designed to take advantage of information relating to plit second shifts in prices to which 90% of investors have no access.

This is only the latest example of the way in which the financial industry has essentially converted the stock markets to money making machines for themselves and their executives, while leaving ordinary investors and the bulk of employees spitting dust.

Is that the purpose of capitalism? If it is, then it is doomed. No system which benefits the privileged to an extraordinary degree at the expense of the vast majority has survived for long. The fact that Goldman Sachs has decided to pay the full value of what it owes to the government rather than argue about it, is nothing other than short term public relations.

Corporations are created according to law based on the assumption that their existence in in the public interest. If their existence proves to be not in the public interest, then they will lose their right to exist. Goldman Sachs, a trend setter in the financial industry for decades, is a prime example of a corporation that no longer serves the public interest and, if it does not alter its ways voluntarily, should be required to do so by regulation.

And if it still does not conform to the public interest, it should be dissolved by law, just like Standard Oil and the old AT&T.

Jul 24 11:18 AM

[YoYoMama:]

The irony of your assertions is that many experts believe that free enterprise and the health of corporations are compromised by runaway executive compensation. Companies would be more productive and healthy by instituting reforms at the top, rather than cutting at the bottom. See:
www.baltimoresun.com/b...
www.time.com/time/maga...
www.csmonitor.com/2005...

Human nature, from Cain and Abel to today, says that left to ourselves we (as a whole) will not be our brother's keeper. FREEDOM DEMANDS RESPONSIBILITY. If humans did not murder, there would be no need for laws against murder. If we did not steal, why legislate against stealing?

If those at the upper echelons truly cared about both the profitability of their company AND what is best for their workers they would VOLUNTARILY accept pay restrictions and cuts at the top.

But without any restriction, executives at the top are, almost without exception, indulging in the worst of their human nature. This is not just to the detriment of their workers, but to their own companies, and to the economy as a whole.

Since executives as a whole refuse to make themselves responsible, there may come a day when the law will demand their good behavior. If that happens, it won't be my fault. THEY WILL ONLY HAVE THEMSELVES TO BLAME.


On Jul 23 07:00 PM Barbarous Relic wrote:

> Actually YoYoMama, I did "work my arse off for a company", got laid
> off, spent 18 months out of work, and then got a better job -- less
> money, but more enjoyable.
>
> Doesn't change my view. The owners of the company have the right
> to hire managers, who among other things are given the job of hiring
> and firing as they see fit. I didn't agree with my being laid off,
> but it was their right to do so, And if the owners are not happy
> with the performance of the managers, the managers themselves will
> be fired. If the company doesn't perform adequately, the owners'
> face a loss on their investment. Everyone is motivated to perform.
>
>
> May not be palatable to all of the people all of the time, but it
> sure beats the alternative of having government mandate who can be
> paid what, and who can be hired or fired and when.

Jul 24 03:14 PM

[fran:]

AGREE! the situation is lousy. NOW WHAT?

the POLs are a "bought issue"[paid up front; acting in their own interest].

the electorate is either brain dead, opiated by continual over indulgence, or don't give a damn.[proven by electing the same POLs forever; lack of wide activism/ displayed universal disturbances--some action to demonstrate their anger].

pending change in attitude/action by these two groups, here we are.

as stated above- - NOW WHAT???

Jul 24 07:22 PM

[PizzaMan:]

Jim,

Couldn't agree more.

Like was said in the movie Tommy Boy:
"Good, you've pinpointed it. Step two is washing it out. "

How do we do that?

Jul 25 05:57 PM