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April 11, 2007

Different Times

I very genuinely can't wrap my mind around the concept that there was a time when the average CEO only out-earned the average worker by a multiple of 40. I keep hearing that it was true, and I can even look through the data, but the prevailing cultural deification of CEOs that's been prominent my whole life makes a mere 40X advantage seem totally discordant. Today's situation, in which they pull in about 300 times what the average worker does, is far more grotesque, but at least makes sense given the culture.

April 11, 2007 | Permalink


In a world in which even student loan adminstrators are trying to bilk American students, nothing surprises me or seems out of place in terms of the greed in this society anymore.

Posted by: akaison | Apr 11, 2007 9:49:35 AM

The worship of the CEO in America makes me want to vomit. The business porn that you see in every airport news stand is a truly repellent phenomenon.

But identification with the oppressor is a big part of right wing culture. If people for a minute actually perceived their true interests, why anything might happen -- national health care, stronger unions, progressive taxation on capital gains and dividends. We could not have that.

Posted by: Klein's Tiny Left Nut | Apr 11, 2007 9:52:02 AM

Big Media Matt makes 300 times what the average blogger does. It's grotesque.

Posted by: otto | Apr 11, 2007 9:53:42 AM

Apparently, there are long term economic forces that are pushing up CEO salaries over the last few decades. Why would the board of directors of so many companies pay at this level if it were not in the best interests of the company?
Instead, this post and many on other liberal boards, simply wring their hands and point to some framwork of the sixties to make an argument of 'fairness'. The question is WHY did these salaries change levels?

Posted by: Fred Jones | Apr 11, 2007 9:53:48 AM

Ezra, it's like this: for corporations, paying their CEOs more and more money is a matter of prestige. No company would willingly say, "we pay our CEO below the industry average."

One the other hand, paying employees less and less is a point of prestige. Every company wants to brag how "our labor costs are far, far below the industry average."

So pressure on CEO salaries goes up and pressure on employee salaries goes down. It's all about shareholder relations.

Posted by: Tyro | Apr 11, 2007 10:40:11 AM

In 20 years when the CEO makes 1000 times more, you'll be telling us how today was a golden age.

Posted by: Chris | Apr 11, 2007 10:42:15 AM

Why would the board of directors of so many companies pay at this level if it were not in the best interests of the company?

Um, maybe because the guys who sit on the boards are also CEOs of other corporations and want to be able to point to other CEO salaries when they themselves demand an increase? It's not like the economics behind this are hidden or even hard to understand.

When you let the wolves run the henhouse by committee, don't be surprised if you get really well-fed wolves.

Posted by: NonyNony | Apr 11, 2007 10:52:33 AM

the only thing driving up CEO salaries is the fact they sit on each others boards, and the power of any individual group of shareholders (unless they are majority interest or significant interest) has systematically been decreased over the last 20 to 30 years. when you are sitting on a compensation of your friends, and its not really your money but instead the investors money a 90 million dollar golden parachut for failure doesn't seem like a real risk. which is what capital should always expect, but after a certain point in this society- above a certain level, we know longer expect. in other words, its not just that they make crazy money, it's that they have no risk involved in making it. if they fail they are wealthy, if they suceed they are wealthy.

Posted by: akaison | Apr 11, 2007 10:59:55 AM

by the way this info as the previously poster has said is easily found in any business mag or a first year mba or law school course on corp compensation.

Posted by: akaison | Apr 11, 2007 11:03:59 AM


Because the lunatics run the motherfucking asylum. The boards of directors are totally in the pockets of the CEOs -- they don't run the companies. They are all in bed together and engaged in the greed-fenzied circle jerk that is today's corporate America.

You might want to familiarize yourselves with Enron, Tyco, Healthsouth, Worldcom, Adelphia, etc. The notion that CEOs bring the kind of value to justify their compensation is nonsense 99 out of a 100 times. They get it because they can. There is no market imperative here. The notion that because they are paid what they are paid it is ipso facto evidence of the value brought to the table is just reductionist crap.

By the way this isn't 60s rhetoric at all -- more 1930s.

Posted by: Klein's Tiny Left Nut | Apr 11, 2007 11:15:07 AM

I am appalled at the lack of understanding on this issue. On commenter offered up 'prestige' and 'keeping up with the Joneses, and another says it's collusion on the part of the CEOs....essentially conspiracy (why am I not surprised).


Listen up. Chief Executive Officers' salaries and other remuneration are set by the board of directors. Those boards are elected by those who have the largest financial stake in the company, the shareholders. Those who have a larger share of the company and have more to lose (or gain) have the most influence. Isn't it amazing that you don't see them coming to the board meetings with torches and pitchforks!!

Of course, in the liberal world, it's all collusion and conspiracy. Yeah, that's it, they all wear black hats.

Posted by: Fred Jones | Apr 11, 2007 11:16:38 AM

Fred, all the rich Republicans I know with the exception of those who harbor a deep-seated desire to suck up to corporate executives are disgusted with the insidery, mutual-masturbation society that makes up corporate boards. Corporate boards being in the pocket of the CEO is a well-known corruption issue when it comes to corporate governance. You might not like to admit that situation, but it is true and well-known.

Posted by: Tyro | Apr 11, 2007 11:32:13 AM

"Today's situation, in which they pull in about 300 times what the average worker does, is far more grotesque, but at least makes sense given the culture."

Of course, things like this are what have created the current culture...

Go watch movies from the 50's through 70's. There's far less wealth worship on average than in current movies.

Posted by: Petey | Apr 11, 2007 11:33:05 AM


You make election to the Board of Directors sound like its a democratic campaign succeptable to grass roots organizing by the share holders. This betrays a total lack of actual experience with how these things work. Company management virtually always presents a slate of directors for an up and down vote by shareholders, and these are generally rubber stamped. Shareholder activists have fought like hell just to get a couple of token independent voices on most corporate boards.

I work with several large pension funds and I can tell you that our influence over who sits on a board despite being major shareholders is minimal. Only when a concerted campaign is waged, requiring time, money, attention and sometimes itigation, can you change this, and it simply can't be done routinely.

Your living in a corporate fantasy world. The directors tend to be rubber stamps for the CEOs and they rarely exercise independence. The CEOs pack boards with their friends, who in turn receive a nice check for very light duty. That's how it works in the real world.

Posted by: Klein's Tiny Left Nut | Apr 11, 2007 11:38:34 AM


Exactly right. Even the small amount of influence that large pension or mutual funds can exert eclipses what an individual shareholder could do.

Of course, many of the "shareholders" that people like Fred always point out as the grand engine of our economy are merely investors in those pension and mutual funds, making their impact upon the whole process precisely zero.

And why would the managers of those large funds do anything to upset the process? They either already run in the same circles as those boards of directors or they wish to.

Really, Fred, none of us are seeing conspiracies here, which entail secrecy. All of this is done in the open. The only conspiracy is the one in your mind that convinces you this system is good for the country and for you personally.

Posted by: Stephen | Apr 11, 2007 11:56:05 AM

It must be nice to live in Fred's world, where nobody could ever be deceived into voting for a board of directors that wasn't conscientiously working hard for the shareholders' interest. Conspiracies and corruption don't exist, because everyone is just so gosh-darned honest - they'd never be elected if they weren't, because dishonesty is such a self-evidently self-defeating strategy for winning elections, in the business world just as much as it is in politics.

I think he's actually still using the old models of economics that assumed everyone was a rational actor with perfect knowledge. Of course, rational shareholders with perfect knowledge *wouldn't* elect corrupt boards of directors. Distracted and uninformed shareholders, who have no really reliable information to base their decision on, are quite another matter.

IMO, most professional business executives are con artists. (Not people who actually founded the business themselves and had it grow under them, but the ones who get themselves hired to run an already running company.) They have little or no skill at actually providing something valuable to the company, but great skill at *convincing others* they provide something valuable. That's their real job - to get on top and stay there, and that's what they're good at, not doing something useful when they get there.

If the company does well they take credit and if not they jump ship and come up with some bullshit that "proves" it wasn't their fault.

Cynical, certainly. But is there any evidence to the contrary, other than Fred's naive faith that no shareholders could possibly be fooled by such a scoundrel?

P.S. What about mutual funds? IIRC, the fund's shares are voted by the fund manager, and the fund shareholders have little information about and less influence on those decisions (even compared to the average small stockholder who owns his shares directly). I don't know how significant a fraction of ownership they are, but clearly the fund manager can have *personal* financial interests that are quite different than those of the fund shareholders, especially once the professional wheelers-and-dealers get to work.

P.P.S. Big Lies has a thorough (and thoroughly revolting) chapter on crony capitalism, but I don't know of any good full-length books on the subject. Anyone have a recommendation?

Posted by: Chris | Apr 11, 2007 11:58:58 AM

I really should, at this point, point out that these are not public funds, public elections and we're not dealing with tax money here.

These are private, for-profit corporations who have every right to elect who they want, run their companies how they want, and pay their executives any amount they feel is necessary.
When you are in the driver's seat, competing both here and abroad, and are looking to hire a CEO, then you can also do what you believe is in the best interests of your company.

As it is, it's just jealousy on your part.

Posted by: Fred Jones | Apr 11, 2007 12:28:51 PM

Along the ,of your jealousy, I don't see you whining about trial lawyers (like Edwards) who make tens of millions suing OB/GYNs

Why aren't you also jealous of them?

Or the Kennedys, who do little but sit on their asses and collect from investments?

Posted by: Fred Jones | Apr 11, 2007 12:31:29 PM

pathetic fred, even for you

Posted by: Sandals | Apr 11, 2007 12:40:49 PM

As it is, it's just jealousy on your part.

Right, that's it. Shareholders are "just jealous" that CEOs are flying on corporate jets with their money. And, yeah, it's the "free market" in action when a corporate board decides to take the shareholders' money to fund a golden parachute package for an outgoing executive.

Fred, the only reason people vote to perpetuate a free-market economy is because they believe that the system is fair and equitable. If you want to continue living in a free market economy, it is in your interest to give people more reason to buy into that myth. Don't piss on their leg and tell them it's raining. At least spray them with a hose and tap water. They'll find your claims of rain to be a bit more believable.

When corporatations -- entities issues charters by the government in exchange for limited liability -- act like it is their job to serve the interests of the corporate executives, rather than the shareholders and doing so at the expense of workers-- which most people in the USA are-- you might find that people are going to start thinking, "maybe this capitalism thing isn't such a great idea, after all." Is that what you want?

This is a fascinating example of how Republicans are divided into the "rich" and "toadies of the rich." The bona fide rich Republicans -- who have started their own businesses and own stocks -- see these corporate compensation packages as odious corruption by a bunch of board members engaging in mutual back-scrubbing. Republicans who desperately wish they were rich identify with the CEOs, rather than people who made their money by, you know, working.

Posted by: Tyro | Apr 11, 2007 12:41:06 PM

Captive boards are undoubtedly a problem for a number of reasons (from a shareholder perspective, CEO pay is by far the most trivial of these). But it's hard to see this as an explanation for the change in CEO pay. AFAIK, corporate boards in the 1950s were, if anything, cosier than the existing group; American corporations were much more often run by members of a protestant elite who had been going to school together and intermarrying since time immemorial, hostile takeovers had yet to put the fear of God into executives, and institutional investors had much less of a voice.

Posted by: Jane Galt | Apr 11, 2007 12:41:21 PM

"Captive boards are undoubtedly a problem for a number of reasons ... But it's hard to see this as an explanation for the change in CEO pay"


Posted by: Petey | Apr 11, 2007 12:53:54 PM

its the capitive board combined with a larger culture that not only accepts that these boards can do whatever or laws that make it hard for shareholders to change it, but celebrates it. it's all about the bling. failure for these people isn't possible economically. my friend works for a company where the new ceo came in, did squat and actually made a really bad decision in terms of trying to grow the company too fast by taking on a bad acquisition, and when she was fired - what did she get? a huge golden parachute. that's the reality of the market. for these people there isn't one. fred's not just delusional- he's dangerous. his kind of ignorance is what will kill real capitalism.

Posted by: akaison | Apr 11, 2007 1:02:53 PM

It is pure jealousy.

Posted by: FoolsMate | Apr 11, 2007 1:08:55 PM

Posted by: Fred Jones | Apr 11, 2007 6:53:48 AM

Apparently, there are long term economic forces that are pushing up CEO salaries over the last few decades. Why would the board of directors of so many companies pay at this level if it were not in the best interests of the company?

Quick answer: because its in the interests of the people sitting on the boards of directors.

Why does the assumption of pursuit of personal self-interest all of a sudden get tossed out the window when it comes to the interlocking directorates of US corporations ... and decisions of boards of directors are automatically selfless decisions made only of the purest of profit seeking for the firm motives?

Long Answer: After all, in Japan, where the interlocking directorate system is focused on the interests of a group of firms instead of a class of people, the multiple is lower. And, indeed, in Germany, where directors from the company's bank exercise a lot of clout, and with the bank benefitting from the success of the firm but not gaining substantial direct rewards from increases in CEO incomes, the multiples are also lower.

Posted by: BruceMcF | Apr 11, 2007 1:15:59 PM

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