Executive Pay and Corporate Ethics
Early in the history of American corporations, it had to be clear that corporations were somehow serving the public good in order to receive the protections and limited liabilities that corporations enjoy. And yet, in our era, it's not surprising that when it comes to profits and executive pay, corporate ethics are sometimes the losers. Robert J. Samuelson of The Washington Post has a column on executive pay:
Something to keep in mind is that a 5% raise for someone earning $30,000 a year is only $1,500. A 5% raise for someone earning $6 million is $300,000. Do the math. The raise the executive gets is 60000% bigger than the raise workers get. A 5% raise for the executive means a great deal more than a 5% raise for a worker. If executives got the same raise workers get, the executives would still be doing very well.
Corporations have an obligation not just to executives, but to shareholders, pension funds (who are shareholders), workers, customers, neighbors, their larger community and even the future (meaning those who may have to pay for their errors or those who are going to need their innovations). Corporate America needs to do far better than it has been doing lately.
Consider a Business Roundtable study, using data that Mercer Human Resource Consulting collected on 350 major companies. The idea was to examine median CEOs -- those in the middle -- as typical. Here's what the study found:
· From 1995 to 2005 median CEO compensation at these companies rose 151 percent, from $2.7 million to $6.8 million (the figure included base salary, bonuses, stock options and other "incentives" -- but not pensions).
· In the same period, the median sales of these companies increased 51 percent, to $7.6 billion, and the median profits 126 percent, to $591 million.
· By contrast, the median pay increase for full-time, year-round workers ages 25 to 64 in these years was only 32 percent, to $38,223 (that's all workers, not just those at the study's firms).
Something to keep in mind is that a 5% raise for someone earning $30,000 a year is only $1,500. A 5% raise for someone earning $6 million is $300,000. Do the math. The raise the executive gets is 60000% bigger than the raise workers get. A 5% raise for the executive means a great deal more than a 5% raise for a worker. If executives got the same raise workers get, the executives would still be doing very well.
Corporations have an obligation not just to executives, but to shareholders, pension funds (who are shareholders), workers, customers, neighbors, their larger community and even the future (meaning those who may have to pay for their errors or those who are going to need their innovations). Corporate America needs to do far better than it has been doing lately.
posted by Poechewe at 8:29 PM
3 Comments:
Maybe raises should be a particular dollar amount that everyone gets, rather than a percentage of pay.
Management would never go for that, since it makes more. The golden rule is he who has the gold makes the rules. The corrollary is that he who makes the rules gets the gold.
At least these days there is more scrutiny when executive raises are not based on performance.
Michael Bindner and Joseph B, thanks for the comments. I don't mind people getting more money if they have more responsibility and talent and they are promoted to a higher pay grade. In the above study, though, workers were getting about a 2.5% to 3% raise a year which is only about the rate of inflation and not really a raise and executives were averaging about a 12-15% raise a year. Given that most CEOs at that level are not miracle workers, it's clearly out of balance. I wonder if there are any corporations out there where everybody gets the same percentage raise?
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