Like most Japanese businessmen, Yoshihiko Miyauchi is coy about how much money he makes, but he swears his paycheck is a fraction of what it would be if he were in America.
“Japanese executives are like army generals,” says the president and chief executive of Orix Corp., a worldwide leasing and financial firm. “There’s a lot of responsibility and status but little pay.”
Everything is relative, of course. Even Japanese executives do better than the average general. Eamonn Fingleton, author of “Blindside: Why Japan is Still on Track to Overtake the U.S. by the Year 2000,” estimates that the CEO of a big Japanese firm might make $1.2 million to $1.5 million a year.
The story is the same around the world. In France, the news that Pierre Suard made $2.5 million in 1994 as chairman of Alcatel Alsthom, a telecommunications and engineering firm, stirred a scandal. In Germany, Juergen Schrempp, chairman of Daimler-Benz, the country’s largest industrial firm, makes an estimated $1.5 million a year.
Even in Tokyo and Paris, this kind of income keeps the wolf from the door. But it’s a far cry from the mega-salaries brought in by U.S. executives, where million-dollar-plus salaries are the norm, where the 20 highest-paid CEOs each bring in more than $11 million a year and where a relatively obscure CEO like Lawrence Coss of Green Tree Financial Corp. made $65 million last year.
The average CEO of a major U.S. corporation made $4.3 million last year–twice as much as even the best-paid chief executive of any foreign firm, according to a survey by the Pearl Meyer & Partners consulting firm.
“What are they going to do with that much money?” marveled Yoshihiro Suzuki, executive vice president of Japanese electronic giant NEC Corp. “How are they going to spend it? These people should ask themselves, `Why am I making this much money?’ “
“We have a strong resistance to high wages like this,” said Denis Kessler, vice president of the Patronat, the French employers’ association. “The situation in the United States seems very awkward to us.”
This sanctimony toward American excess might be more impressive if non-American executives were more willing to publicize their own paychecks. The law in most countries, unlike U.S. law, does not require publicly held companies to tell how much they pay their top executives, and the executives seldom volunteer the information. In France, executives have sued muckraking reporters who found out their salaries and published them.
“Voyeurism,” huffed Jean-Marie Messier of Compagnie Generale des Eaux, when asked by a French magazine to tell how much he makes.
“That belongs in the realm of private life,” said Philippe Jaffre, president of French oil firm Elf Aquitaine.
Despite this, virtually all experts agree that the salaries of U.S. executives are in a class by themselves.
Patrick Ponsolle, co-president of Eurotunnel, made $348,000 last year. Michel Albert, president of a French insurance company, Assurances Generales de France, says most French CEOs make $500,000 to $1 million a year. Business Week magazine has pegged the pay of CEOs at the biggest Japanese corporations at an average $870,000 a year.
Towers Perrin, an international executive-search firm, says that an average American CEO makes $932,040 a year, counting base pay, bonuses, stock options and other forms of payment.
By contrast, it said, the average total pay for a French CEO is $586,004, for a German $494,483, for a Japanese $453,546 and for a British $491,698.
This difference becomes even greater after taxes are paid. In the United States, the top tax rate is 39 percent: it’s 50 percent in Japan and 57 percent in Germany and France.
There are reasons for these differences.
One is the tax bite. It makes less sense to demand a high salary if the tax man is going to take most of it. Instead, many foreign executives worry more about perks like housing or, in Japan, golf-club memberships, than salaries.
“When I’m recruiting an executive here, I spend more time negotiating the type of car he’s going to get than his pay,” said Daniel Jouve, president of Jouve & Associates, a Paris head-hunting firm. “It’s the status that counts.”
Another factor is the makeup of the boards that set executive salaries. In Germany, half the board members at most big firms are workers’ representatives, which puts a powerful brake on any temptation to raise CEO salaries at the expense of workers’ pay. In Japan, board members are mostly other executives who are less inclined to give mega-raises to CEOs than are U.S. boards, which are often dominated by outside directors, most of them high-paid CEOs themselves.
A crucial reason is a tradition of equality that doesn’t exist in the United States. At $4.3 million per year, the CEO of a top American firm makes more than 130 times the pay of an average manufacturing employee, who earned $32,000 last year, according to Towers Perrin.
By contrast, Japanese CEOs make nine times as much as the average manufacturing employee, Towers Perrin said.
Cornell University researchers John M. Abowd and Michael L. Bognanno found that executive salaries are going up everywhere, although U.S. executive salaries are going up fastest. But Abowd and Bognanno also found that this U.S. growth is coming at the expense of other executives. Between 1984 and 1992, for instance, the pay of U.S. human relations directors fell from first to 10th among 12 industrial nations the researchers studied.
In addition, they said, the gap between U.S. CEOs and their employees on the factory floor is caused both by soaring CEO salaries and the fact that American workers were the only ones in the 12-nation survey to suffer an actual decline in real wages.
(The best-paid human relations directors are in Japan, France and Belgium. The best-paid factory workers are in Japan, Switzerland and Germany.)
Sheer greed, more sharply honed in American boardrooms than elsewhere, also plays a role. Most German executives are “appalled” by this inequality, said Hans-Olaf Henkel, president of the Federation of German Industry.
In Japan, “the way of thinking of top executives in a company like ours is that they don’t work for a salary,” said Keizo Fukagawa, senior vice president of electronics firm Fujitsu Ltd. “It’s more a sense of mission, like that of the president of the United States. We have a strong sense of responsibility to raise the stock price, but we also have a strong responsibility to others, especially workers.”
This matter of raising the stock price is probably the key difference. In Japan and many European countries, companies receive more of their financing from banks than from stock markets. Stockholders in companies often are banks or other companies more interested in a long-term investment than in the ups and downs of a stock market.
So stock prices in these countries aren’t as important as they are in the United States, where executives receive stock options that encourage them to raise these prices. Of the 20 top-paid U.S. CEOs in 1994, all but two made more from exercising these options than from their salary and bonus.
As more foreign companies go to the New York Stock Exchange and other markets for financing, share prices will loom larger for their management, said Juergen W. Mueller, an economist for Daimler-Benz, which recently became the first German firm to be listed on the NYSE.
Not coincidentally, 170 of Daimler-Benz’s executives have been given stock options. But by American standards, these options were small: Schrempp, the chairman, received options worth about $65,000.
And it probably will be some time before non-American executives can match the paychecks of their U.S. rivals.
Despite globalization, most companies are still so national in their culture and character that executives can’t move from country to country in search of the highest salary or strong-arm their employers into raising their pay by threatening to jump to an American firm.
