Blog author: jcouretas
Friday, August 5, 2005
By

In a column in today’s Washington Times, Arnaud de Borchgrave looks at the growing gap between executive compensation and the pay of just about everyone else. He quotes a Wall Street Journal study showing that in 2004 the median salary and bonus for CEOs soared 14.5 percent, while paychecks for salaried employees averaged a 3.4 percent increase. Among those who view this situation with alarm are Fed Chairman Alan Greenspan and Christopher Cox, the new chairman of the Securities and Exchange Commission.

de Borchgrave notes that “William J. McDonough, chairman of the Public Company Oversight Board since 2003, and president of the New York Federal Reserve Bank for the previous decade, called the yawning gap ‘the single most important issue’ in today’s America. Hello. Is anyone listening? Income disparity is now wider than anywhere in the European Union or Japan, and can only be found in Third World countries.”

de Borchgrave predicts that this wealth gap is “guaranteed” to produce a backlash that will lead to increased labor union militancy. That’s far from certain. For one thing, Americans tolerate and perhaps grudgingly admire the extravagant compensation packages of Wall Street execs and other corporate chiefs because they understand that the market system rewards those who compete and succeed. Not a few Americans aspire to a life where they are vastly overpaid, themselves. If you look at a business career as a high stakes poker game, then you should be playing for the jackpot.

A retired business executive recently explained it to me: “There are three ways to acquire wealth. You can inherit it. You can marry it. Or you can steal it. Of the three ways, stealing is by far the most honorable.” This is a joke, of course. The point, I think, is that Americans look on passively acquired wealth with suspicion, while those who succeed in the marketplace on their talents and their wits, are admired.

But the issue of executive compensation — or overcompensation — raises profound moral questions about the character of CEO stewardship, the oversight role of boards of directors, and the just treatment of salaried and hourly employees. Time and again at public companies, we see examples of CEOs obsessively enriching themselves as their companies go into long-term decline or oblivion. These cases are not soon forgotten by those who have been left broken and adrift when these woefully mismananged companies disintegrate or go under.

If de Borchgrave is right about the prospect of more labor militancy, then Americans will see the truth of an old adage: If your company has a union, it probably deserved it. And that’s no joke.


  • http://www.schlacks.org John Powers

    What exactly is the problem with income disparity that would prompt the Federal Reserve to make such a statement?

    No rich person makes me poor. I make myself poor. Rich people make themselves rich. Rich people either spend or invest money…there is nothing else to do with it. How is this a problem?

    JBP

  • http://WWW.FOROLIBRE.ORG EDGAR PIച

    I CONSIDER MYSELF AND MY FAMILY POOR and the origin of such a poverty is related with bad goverment and the existence of various monopolies whose owners are rich, very rich people. And also de government officials and politicians are rich. What do you think about it?

  • http://www.schlacks.org John Powers

    I stand corrected. Yes, I can certainly see how a government mandated monopoly could drive people towards poverty.

    Within the context of the article, however, as I read it, since some big corporations in the USA pay high salaries to executives, other people are poor, causing the Federal Reserve to question why people get paid high salaries.

    I do not see that the statement from the Federal Reserve logically follows the data that some people are richer than others.

    JBP