Chief executive officer pay has almost recovered to pre-recession levels. While this is great news for those collecting the huge salaries, it is sure to spur outrage among those still without jobs or who still can barely afford their mortgage payments. Calls for limiting executive pay are misdirected, however.
An analysis of CEO pay at 158 of Standard & Poor’s 500 index companies revealed that median CEO pay — that salary at which half of CEOs earned more and half earned less — rose 27 percent from 2009 to 2010 to $9 million, USA Today reported.
The top-earning CEO in 2010 was Philippe Dauman of Viacom at $84.5 million, an increase of 149 percent over 2009. The company board of directors cited his “leadership and performance during his tenure [since 2006] at Viacom, and particularly during one of the most difficult economic environments in our history.”
This news recalls the Ben & Jerry’s Ice Cream company rule that limited the highest-paid employee to earning no more than seven times what the lowest-paid worker earned. If the CEO earns $9 million under the Ben & Jerry’s rule, the janitor at the business would earn more than $1.2 million.
While publicly attractive, the Ben & Jerry’s rule doesn’t work because the head honcho makes decisions that affect the very survival of the company, while those of the janitor and others do not have such high stakes. In fact, Ben & Jerry’s abandoned the “no more than seven times higher” rule, presumably to land the executive talent it needed.
But that’s not to say that being appalled at these compensation packages (the median bonus is up to $2.2 million and the median stock option is up to $5.6 million) is wrong, it just doesn’t begin to ameliorate the problem. The money reflects the limitless nature of capitalism. Government does intervene in setting a base minimum wage, but setting a maximum wage doesn’t make much sense.
Government can intervene through levying income tax. Seventy years ago, the top rate was 94 percent. Interestingly, President Franklin Roosevelt wanted Congress in 1942 to adopt a 100 percent income tax rate on earnings over $25,000 (equivalent to about $335,000 today); in essence, a maximum wage. A Gallup poll showed that 47 percent of Americans supported the plan. Congress balked.
Under President John F. Kennedy, the top rate was cut to 70 percent. President Ronald Reagan cut the top rate to 28 percent.
Where there is the popular will, there is a way to curb such excesses in compensation. But the political will is more likely to cater to CEOs, not janitors.