{"id":374107,"date":"2018-08-20T07:58:22","date_gmt":"2018-08-20T06:58:22","guid":{"rendered":"http:\/\/rinf.com\/alt-news\/newswire\/the-market-made-them-do-it\/"},"modified":"2018-08-20T07:58:22","modified_gmt":"2018-08-20T06:58:22","slug":"the-market-made-them-do-it","status":"publish","type":"post","link":"http:\/\/rinf.com\/alt-news\/newswire\/the-market-made-them-do-it\/","title":{"rendered":"The Market Made Them Do It"},"content":{"rendered":"
<\/p>\n

Back in 1999, near the dizzying height of the dot.com boom, no executive in Corporate America personified the soaring pay packages of America\u2019s CEOs more than Jack Welch, the chief exec at General Electric. Welch took home $75 million that year.<\/p>\n

What explained the enormity of that compensation? Welch didn\u2019t claim any genius on his part. He credited his success, instead, to the genius of the free market.<\/p>\n

\u201cIs my salary too high?\u201d mused Welch. \u201cSomebody else will have to decide that, but this is a competitive marketplace.\u201d<\/p>\n

Translation: \u201cI deserve every penny. The market says so.\u201d<\/p>\n

Top U.S. corporate execs today, on average, are doing even better than top execs in Welch\u2019s heyday. In 1999, notes a just-released new report from the Economic Policy Institute, CEOs at the nation\u2019s 350 biggest corporations pocketed 248 times the pay of average workers in their industries. Top execs last year averaged 312 times more.<\/p>\n

What explains this growing generosity to America\u2019s top corporate chiefs? Today\u2019s apologists for over-the-top CEO compensation, like Jack Welch a generation ago, point to the market.<\/p>\n

One leading critic of these apologists, the Dutch management scientist Manfred Kets de Vries, neatly summed up<\/a> this market world view earlier this year: Big CEO pay packages \u201creflect market demands for a CEO\u2019s unique skills and contribution to the bottom line.\u201d Mega-million executive paychecks \u201cmerely represent the market forces of supply and demand.\u201d<\/p>\n

Or, as the University of Chicago\u2019s Steven Kaplan puts it<\/a>, \u201cThe market for talent puts pressure on boards to reward their top people at competitive pay levels in order to both attract and retain them.\u201d<\/p>\n

In the world that CEO cheerleaders like Kaplan inhabit, impartial, unbiased markets determine executive compensation. Corporate boards simply play by market rules. They pay their execs what the market says their execs deserve. If they don\u2019t, they risk losing their executive talent.<\/p>\n

American corporate leaders take scarcity \u2014 of CEO talent \u2014 as a given. How else, in a market economy, to explain rapidly rising CEO pay? If quality CEOs abounded, executive compensation would not be soaring. But that compensation is soaring, so qualified CEOs obviously must be few and far between \u2014 and totally deserving of whatever many millions they receive. Simple market logic.<\/p>\n

And simply wrong. American corporations today confront no scarcity of executive talent. The numbers of people qualified to run multi-billion-dollar companies have never, in reality, been more plentiful. These numbers have been growing steadily over recent decades, in part because America\u2019s graduate schools of business have been graduating, year after year, thousands of rigorously trained executives.<\/p>\n

America\u2019s first graduate school for executives, the Tuck School of Business at Dartmouth, currently boasts<\/a> an alumni network over 10,000 strong. MBAs in the equally prestigious Harvard Business School alumni network total <\/a>over 46,000. Add in the alumni from other widely acclaimed institutions and the available supply of executives trained at America\u2019s top-notch business schools approaches several hundred thousand.<\/p>\n

Just how many of these academically trained executives have the skills and experience really needed to run a Fortune 500 company? Let\u2019s assume, conservatively, that only 1 percent of the alumni from the \u201cbest\u201d business schools have enough skills and experience to run a big-time corporation.<\/p>\n

That arithmetic would give Fortune 500 companies that go looking for a new CEO at least several thousand eminently qualified candidates. No supply shortage here.<\/p>\n

Indeed, today\u2019s business world is overflowing with eminently qualified CEO candidates, once you add in the grads from business schools abroad. INSEAD, perhaps the most prominent of these international schools, now has over<\/a> 56,000 active alumni.<\/p>\n

In the past, to be sure, American corporations seldom looked beyond the borders of the United States for executive talent. That tunnel vision made some sense. Executives inside the United States and executives outside worked in different business environments. Foreign executives could hardly be expected to succeed in an unfamiliar American marketplace, even if they did speak flawless English.<\/p>\n

But today, in our celebrated \u201cglobalized\u201d economy, that distinction between domestic and foreign executives no longer matters nearly as much. In dozens of foreign nations, in hundreds of foreign corporations, executives are competing in the same global marketplace as their American counterparts. They\u2019re using the same technologies, studying the same market data, and strategizing toward the same business goals. Together, taken as a group, executives from elsewhere in the world constitute a huge new pool of talent for American corporations.<\/p>\n

Pay consultants in the United States, for their part, do acknowledge the reality of this global marketplace for executive talent. In fact, they cite global competition as one important reason why executive pay in the United States is rising. American companies, the argument goes, now have to compete against foreign companies for executive talent, the argument goes. This competition is forcing up executive pay in the United States.<\/p>\n

Really? What ever happened to market logic? If corporations all around the world paid their executives at comparable rates, market competition would certainly force up executive compensation worldwide. But corporations don\u2019t all pay executives at comparable rates.<\/p>\n

American executives take home far more compensation than their foreign counterparts, on average over triple<\/a> the pay of execs in America\u2019s peer nations. By classic market logic, any competition between highly paid American executives and equally qualified but more modestly paid international executives ought to end up lowering, not raising, the higher pay rates in the United States.<\/p>\n

Why, after all, would an American corporation pay $50 million for an American CEO when a skilled international CEO could easily be had for one-fifth or even one-fiftieth that price?<\/p>\n

We have here, in short, a situation that a deep, abiding faith in the \u201cmarket\u201d does not explain. In the executive talent marketplace, American corporations face plenty, not scarcity, yet the going rate for American executives keeps rising.<\/p>\n

Has someone repealed the laws of supply and demand? How else could executive pay in the United States have ascended to such lofty levels?<\/p>\n

Some analysts do have an alternate explanation to offer. Markets, they point out, still operate by supply and demand. But markets don\u2019t set executive pay.<\/p>\n

\u201cCEOs who cheerlead for market forces wouldn\u2019t think of having them actually applied to their own pay packages,\u201d as commentator Matthew Miller has noted in the Los Angeles Times. \u201cThe reality is that CEO pay is set through a clubby, rigged system in which CEOs, their buddies on board compensation committees and a small cadre of lawyers and \u2018compensation consultants\u2019 are in cahoots to keep the millions coming.\u201d<\/p>\n

\u201cCEO compensation,\u201d agree <\/a>Lawrence Michel and Jessica Schieder, the authors of the new Economic Policy Institute executive pay report, \u201cappears to reflect not greater productivity of executives but the power of CEOs to extract concessions.\u201d<\/p>\n

If CEOs earned less, the pair add, we would see \u201cno adverse impact on output or employment.\u201d Instead, they go on, lower executive paychecks would mean higher rewards for corporate workers, since the huge paydays that go to CEOs today reflect \u201cincome that otherwise would have accrued to others.\u201d<\/p>\n

How could those \u201cothers,\u201d the rest of us, best go about lowering CEO compensation? Michel and Schieder offer a variety of promising proposals, ranging from higher marginal income tax rates to higher corporate tax rates<\/a> on companies with excessively wide CEO-to-worker compensation ratios.<\/p>\n

And what might a reasonable CEO-to-worker pay ratio be? The new Economic Policy Institute research suggests one plausible goal. Back in 1965, Michel and Schieder calculate, America\u2019s top execs only pulled down 20 times more pay than the nation\u2019s average workers.<\/p>\n<\/div>\n

Via Common Dreams<\/a>. This piece was reprinted by RINF Alternative News<\/a> with permission or license.<\/b><\/p>\n","protected":false},"excerpt":{"rendered":"

Back in 1999, near the dizzying height of the dot.com boom, no executive in Corporate America personified the soaring pay packages of America\u2019s CEOs more than Jack Welch, the chief exec at General Electric. Welch took home $75 million that year. What explained the enormity of that compensation? Welch didn\u2019t claim any genius on his […]<\/p>\n","protected":false},"author":1,"featured_media":374108,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[519],"tags":[],"class_list":{"0":"post-374107","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-newswire"},"_links":{"self":[{"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/posts\/374107","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/comments?post=374107"}],"version-history":[{"count":0,"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/posts\/374107\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/media\/374108"}],"wp:attachment":[{"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/media?parent=374107"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/categories?post=374107"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/rinf.com\/alt-news\/wp-json\/wp\/v2\/tags?post=374107"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}