Sharing the Wealth

“The most successful companies I’ve gotten to know understand that they create the most value when people at every level share in the value they help to create.”

This is the central argument Bill Taylor makes for “Why Nobody Wins Unless Everybody Wins” (HBR, December 7, 2010). His argument happens to be timely with the national debate over tax cuts for millionaires. I’ve railed in previous articles about excessive executive compensation (here, here, and here), which makes those who are not executives cynical about the real value of what they are doing. I also recently read that U.S. companies are now holding onto something like $37 trillion in profits, presumably waiting for the right moment when the recession lets up and they feel free to invest again.

All three of these factors—more of our income gains going to the top one-tenth of one percent than the bottom 60%, executive compensation hundreds of times more than average salaries, and leaders hoarding profits—are key factors in our current economic decline. Study after study has shown that tax cuts for the rich do almost nothing to add jobs: The wealthy just save or invest their extra dough. Tax cuts for everyone else go right back into…

He Is 400x More Valuable Than You Are

Last week I wrote about David Calhoun, the executive Nielsen hired in 2006 to lead the company who is “earning” $78 million for five years of work (Shut! Up!), my point being that excessive executive compensation is ridiculous. Today, Ron Ashkenas made the same point by noting that CEO compensation in the U.S. was 40 times greater than that of the average worker in 1960 and now it’s more than four hundred times greater. Ashkenas writes, “From 1990 to 2005, CEO compensation increased 300% (adjusted for inflation) while the pay of average workers increased only 4.3%.” (“Rethinking the Assumptions Behind Executive Pay,” HBR)

Those are incredible statistics and they’ve been written about and talked about for years now but nothing is being done about it. It’s like watching that oil spewing into the Gulf of Mexico and everybody knows it’s bad and it matters to oil people because it looks bad, but eventually we turn our attention to other things and it’s back to business as usual. Nothing will be done about the cause of the oil spill or the causes of excessive executive compensation because the people who control those things stand to gain the most from the status quo. If I…

Excessive Executive Compensation Derails Excellence

I’m certainly no expert on executive compensation, but I believe there are two reasons that paying executives exorbitant salaries, bonuses, and stock options is bad for business. The first is ethical. The second is cultural.

An article online at the Wall Street Journal today stated that “pensions for top executives rose an average of 19% in 2008, with more than 200 executives seeing pensions increase more than 50%.”  Yet, as Ellen E. Schultz and Tom McGinty write in “Pensions for Executives on Rise,” “Executive pensions rose even as the share prices at the companies declined an average of 37% in 2008 and many firms froze employee pensions and suspended retirement-plan contributions.” And cut employee benefits. And laid people off.

That’s an ethical issue. It’s a moral issue. The Economic Policy Institute stated that the average CEO of a company with at least $1 billion in annual revenue makes 262 times what the average worker makes. I’ve heard all the rationalizations for this but they miss the point: Companies pay their CEOs these outrageous amounts because they have passive investors and servile directors who rarely question the conventional wisdom of paying a leader 262 times more than other employees. Very few have the courage to break…