CEO Pay and the Bailout

Even in Congress, a lot of people are concerned that President Bush’s proposed $700 billion bailout for the financial sector will unduly benefit the superrich CEOs who contributed so much to this mess in the first place. Most Americans are appalled by the bloated CEO compensations that we occasionally hear about.

But maybe you didn’t hear about the CEO pay for the very firms that are most in the news these days.Last year, for example, AIG’s Martin Sullivan received compensation of $13.9 million, including a performance based bonus of $5.6 million. And this was after a 50% cut in his compensation from 2006! Who topped the list of CEO compensation in 2007? John Thain of Merrill Lynch, another failed enterprise. His compensation in 2007 was $83.1 million.

These amounts are breathtaking, but most people don’t realize, I think, how much this has changed over the last twenty years, and how out of line US CEO salaries are with those in other countries. I raise this in my book, in Chapter 2 on “The End of Affluence and Equality,” which I excerpt here:

In the 1950s, big-company CEOs in the U.S. earned about fifty times the pay of an average worker. Even then, that ratio was very high compared to other countries. But since then, CEO pay in the U.S. has skyrocketed in comparison to average salaries. By 1990, average CEO pay was about 100 times the average worker’s salary, and by 2000, it was more than 500 times that of the average worker.

These benefit packages are far out of line with those in other wealthy countries.

In 2004, the New York Times reported comparative ratios of CEO pay to employee averages. In Japan, CEOs earned about ten times that of the average employee. In Germany, the ratio was 11 to 1, in the UK 25 to 1, and in the United States, 531 to 1! It is difficult to see how American companies can justify these huge executive compensations when these other countries, which much smaller CEO pay, have generally managed faster economic growth, greater productivity increases, and greater gains in their stock markets.

CEO pay is another glaring example of how far out of kilter the U.S. economy is, how eroded is the sense of fairness in this country, and how out of sync the U.S. is with the rest of the world. It is yet another example of The End of the American Century.