On April 24th, 2021, the New York Times reported that many CEO’s of American companies hit by fallout from the Covid crisis, received huge salaries and bonuses anyway. Here’s their list of the top twenty highest paid CEO’s in America, put to a beguiling tune by the Flying Lizards.
When an average CEO’s salary is compared to a typical worker’s, a steep upward trend is obvious. In the sixties, people were outraged by a ratio of 21-to-1. By 1989 the gap tripled to 61-to-1—but they were just picking up steam. In 2019, it went to 320-to-1!
Put another way, from 1978 to 2019, inflation adjusted compensation for the typical worker grew 14 percent, and for CEO’s: 1,167 percent. Good work if you can get it, but no one seems to care.
You seldom see people picketing company headquarters or loudly denouncing the self-dealing that leads to these remuneration travesties. Instead, more outrage is directed at how Mr. Potato Head will no longer be called “Mr.,” and the discontinuation of a couple of unpopular Dr. Seuss books. That the rich don’t seem able to get enough, well, that’s something that just can’t be helped.
An oft repeated lament is: The rich get richer, and the statistics bear it out. In 1968, the top-earning 20% of households brought in 43% of the nation’s income. In 2018, the same group was getting 52%.
In 2019, the top 1% of Americans had a combined net worth of $34.2 trillion, which is about a third of all household wealth in the U.S. Conversely, the bottom half of the population holds just $2.1 trillion, or 1.9%.
What’s Good for General Motors
In 1950, Charles E. Wilson, who was president of General Motors Corp., received the highest compensation paid by any public U.S. company. In total, he received $626,300, comprised of a salary of $201,300, $61,205 in GM stock, and cash payments totaling $363,795 to be paid out over the subsequent five years. In today’s dollars, that would be about $ 7 million, which at the time was an absolutely outrageous sum. Not so much when compared to today’s glutinous excesses.
Charlie’s pay took into account the income tax rates of 1950, which for pay over $200,000 was 91%, of which only $1,300 would be taxed at the maximum rate ($201,300 – $200,000 = $1,300). GM deferred another $363,795 in pay over the next five years, and whether or not that was a successful tax avoidance strategy would depend on future earnings or changes in tax law.
Beginning in the fifties, the federal government gave beneficial treatment to stock awards, which is reflected in Mr. Wilson’s $61,205 worth of GM stock. By the end of the decade, such awards and options would account for about half of all executive compensation.
In 1953, Mr. Wilson joined the Eisenhower administration as Secretary of Defense. During his confirmation hearing, his ownership of $2.5 million in GM stock prompted someone to ask if he could make a decision as Secretary of Defense that would be adverse to the interests of General Motors. Wilson said he could and added that he’d always believed that what was good for our country was good for General Motors, and vice versa.
In popular culture, the quip was shortened to “What’s good for General Motors is good for the country,” which he thought mischaracterized his original, more nuanced meaning, but it was the shortened version of the quote that stuck. Ultimately, Mr. Wilson was forced to divest the stock.
Stock awards and options continued through the fifties and sixties, but fell out of favor during the seventies (due to a soft stock market). Stock options came back in the eighties, as a way—the theory went—to make CEO’s act more like entrepreneurs, i.e., tie rewards and penalties to performance.
Pay via stock options was further boosted in 1994 when the Federal government capped the deduction for cash pay to executives at $1 million, with no such limitations on performance-linked compensation. Companies quickly restructured pay plans, which resulted in large and ongoing increases in option grants to CEO’s.
These grants provided incentive for the executives to improve stock prices, which for the nation led to all kinds of adverse, unintended consequences. The worst of these was the closing of thousands of US factories and the exportation of millions of American jobs to China and other low labor-cost nations.
While American CEO’s pocketed enormous amounts of coin, and stockholders saw their net worth climb, the gains were paid for by low-skill, working class Americans who could no longer earn a living wage at the local mill because the factory had been sacrificed on the alter of higher stock prices.
It’s always been said that a corporation’s executives had to answer to only one audience, and that was its stockholders. That is pretty much how it’s been, but in the days before low-cost ocean freight and instantaneous, world-wide communications, cost cutting meant moving a plant from New York to Wichita—or maybe decreasing how much cereal came in the box.
The advent of globalization however, gave the captains of many American industries new options that foreseeably wouldn’t result in positive outcomes for the nation. Companies no longer had to deal with stubborn labor unions who always wanted more. High-cost factories could be closed, and expensive labor could be replaced by workers making a tenth as much—and who knew if they had healthcare or decent working conditions. That was somebody else’s problem.
Nonsense was spun that the march of globalization was inexorable and would ultimately be a net positive for the country. Terms like creative destruction were bandied about as gospel, and people who should’ve known better nodded their heads. It was said that low-skill jobs would somehow be magically replaced by better, high-skill and more fulfilling occupations, as company towns all over the country died and turned into places of despair and hopelessness.
Another quick way of driving up profits was booking profits in other, low-tax countries. If that didn’t goose the stock price enough, the entire company could be uprooted and moved overseas, eradicating more American jobs and profits that were once viewed as foundational to the country.
In the seventy years since Charles E. Wilson expressed his heartfelt opinion that what was good for American business couldn’t help but be good for America, it’s clear that it’s no longer the case.
Before these CEO’s cost-save the United States into third-world status, America’s policy makers need to acknowledge this reality so work can begin to repair the damage done to the nation’s economic engine.