06 February 2009


I found this in today's NYTimes, in the online feature called Economix

"Readers may also wonder why, in the United States, the ratio of total executive compensation (including bonuses and deferred compensation, pensions and perks) to the comparable figure earned by non-management employees rose from 50 in 1980 (even lower than the 1940 figure quoted yestersday), to 301 by 2003 for the 300 to 400 largest corporations (and to 500 in very large corporations) (far beyond the 170 I noted as the upper limit yesterday), while that ratio typically has remained so much lower in Europe and in Asia. Are corporate executives in Europe and Asia so vastly inferior to their American counterparts, or is the supply of potential C.E.O.’s so much larger there as to drive down the ratio in, say, Japan, to as low a 3?"

Makes one think...


Joel Monka said...

I think a more accurate accessment would be that in Europe and Japan, fewer people own stock, and that they are more likely to take interest in and vote in board meetings. Here, most stock is held in mutuals and similar vehicles, and those few times when you're even aware of a vote, most people just sign the mutual's proxy. This means that board members have little of the traditional stockholder's oversight, and so can vote each other and revolving chair presidents massive raises without fearing a stockholder revolt. If you start asking people if they'vce ever spoken to or written to a director of a corporation they hold stock in, you'll usually get a blank stare.

WFW said...

The disparity between the USA and other nations in CEO compensation has lots of factors, I agree. but what this tells is that absent a culture of accounjtability people excess is inevitable.

Earlier in the Economix post was the explicit assumption that the measure of a corporation's 'value' was its share price, something we have heard for a long time. If the CEO can raise that, he/sghe earns what we pay. But I wonder if this is not as automatic an assumption as it appears. When I was much younger, the measure of a company was its dividend, the profit it paid to its shareholders. Maybe PE ratio would be more useful, as stock price can be affected by lots of things, and may not reflect the actual value of the company.