Executive Pay

EXECUTIVE PAY….OK, you want some good news? Just a teensy little bit of good news? Here you go, courtesy of the Economist:

When the public mood changes, the realisation can take time to sink in. Behaviour that was once acceptable can overnight come to be seen as outrageous. The board of GlaxoSmithKline, a big pharmaceutical company, found itself this week at the sharp end of such a mood change: its shareholders voted to reject the company’s remuneration committee report, which would have endorsed a two-year notice period for Jean-Pierre Garnier, its chief executive; paid him $35m if he lost his job; and treated him and his wife as three years older than they actually are for the purpose of boosting their pensions.

It’s about damn time. As a former highly paid executive myself, I speak from experience when I say that the compensation of corporate executives is a scandal almost beyond comprehension.

Let’s put this in perspective. After I wrote this post a couple of days ago about our winner-take-all economy, David Adesnik of OxBlog responded by saying (in part) the following (scroll to “The Unknown Economist”):

I tend to accept that growth in market economies reflects the willingness of those with capital to invest it in projects that carry with them a certain degree of risk.

If this were really true, my criticisms of Reagan-era economics would be more muted. But it’s not. When we talk about the “top 5%,” we’re mostly talking not about Bill Gates, but about run-of-the-mill corporate executives, who have seen their compensation skyrocket over the past 20 years.

This has happened despite the fact that, based on fairly normal criteria such as revenue and earnings growth, return on equity, etc., they don’t run their companies any better than their predecessors in the 50s, 60s, or 70s. And the worst part, as the Economist mentions, is that their pay packages are almost completely risk free. Rewarding entrepreneurs for their risk is something that makes sense because they also drive a lot of economic growth, but rewarding the CEO of Disney the same way makes no sense at all.

If corporate executives want enormous pay packages, they should be willing to accept some genuine risk: low or nonexistent pay if they underperform compared to other comparable companies. If they don’t want to accept this risk, they should simply be paid like any other salaried worker. But they shouldn’t be allowed to do both.

Washington Monthly - Donate today and your gift will be doubled!

Support Nonprofit Journalism

If you enjoyed this article, consider making a donation to help us produce more like it. The Washington Monthly was founded in 1969 to tell the stories of how government really works—and how to make it work better. Fifty years later, the need for incisive analysis and new, progressive policy ideas is clearer than ever. As a nonprofit, we rely on support from readers like you.

Yes, I’ll make a donation