The average chief executive officers of America’s biggest corporations, most of them unknown to the general public, make 62 times as much money as the president of the United States.
No one is suggesting tag days for President Clinton or is predicting that his successor will have to moonlight to make ends meet.
But this eye-popping statistic points up, on this Labor Day weekend, the truly medieval gap in this country between the rich and the rest–between the top and the bottom, between the wealthy and the middle class, between executives and their workers, even between corporate chieftains and the nation’s commander in chief.
Compare some paychecks:
The average factory worker made $23,712 last year.
The average worker in general made about $30,000–$36,125 for men, $26,433 for women.
The average family made $47,769.
The president of the United States made $200,000.
The average CEO of the 350 biggest corporations made $12.4 million in salary and stock options; a few made five or 10 times that much.
The average CEO of the biggest Internet firms, the so-called Fortune e-50, made the most, $15.9 million.
Between the corner suite and the Oval Office, the gap is 62 to 1. Between the average CEO and his worker, it’s closer to 500 to 1, and it’s growing.
These figures, which are part of a new report, “Executive Excess 2000,” point up the fact that, over the past 20 years, the U.S. has become by far the most unequal nation in the industrialized world.
“It’s a flaw in the American dream, that one group should be getting such a grotesquely skewed portion of the pie while most Americans get next to nothing,” said John Cavanagh, president of the Institute for Policy Studies, a pro-labor Washington think tank that co-authored the report with United for a Fair Economy, a Boston-based national non-profit group focusing on economic inequality.
The gap between CEO income and presidential pay stems only partly from the fact that the American president hasn’t had a raise in 30 years. Presidential pay rose only three times in the 20th Century, to $75,000 in 1909, to $100,000 in 1949, and to $200,000 in 1969. Congress voted last year to double the president’s pay to $400,000 per year, a tidy raise that will take effect next year, after Clinton leaves office.
Mostly the gap reflected the multiplication in executive wealth of the past decade, largely due to rich stock options. This executive compensation has soared by more than 500 percent over the past decade, the report said, meaning that either Al Gore or George W. Bush, even with that pay raise, will have to scramble to keep up.
“This enormous pay gap degrades democracy in this country,” Cavanagh said. “I think we have devalued the presidency. If you see you can make 60 times as much in the private sector, it’s an enormous disincentive to the best and the brightest to go into public service.”
In recent years, such studies as “Executive Excess” have generated both headlines and laments about this inequality. But they have done nothing to affect the gaps, which are growing by the year.
In 1996, the CEO of a top American firm made $5.7 million per year, or 209 times the wages of an average manufacturing employee. In 1999, three years later, that gap was 475-1. By now, it almost certainly is over 500-1.
The reason is that CEO incomes have soared in the 1990s, while average pay rose slightly. For the ’90s, CEO pay rose 535 percent, while pay of the average worker rose 32 percent. The statistics underlying the comparisons come from the U.S. government, especially the Bureau of Labor Statistics, or from executive pay reports compiled by Fortune and Business Week magazines.
Had that average $23,753 for manufacturing workers grown as fast as CEO pay during the decade, it would now be $115,035 per year.
The same ratio holds true for the minimum wage, which was $3.80 per hour in 1990, is $5.15 now and, under a bill before Congress, may rise to $6.15 in two years. If this minimum wage had grown as fast as CEO pay in the 1990s, it wouldn’t be $5.15 now but $24.13, enough to lift America’s millions of working poor out of their poverty.
If CEOs of mainstream corporations are living high on the hog, CEOs of the dot-com world are in true clover.
David Pottruck, CEO of Charles Schwab, made $127.9 million in 1999 in salary, bonuses and options. Others did nearly as well–John Chambers of Cisco Systems with $121.7 million, Steve Case of America Online with $117.1 million, Louis Gerstner of IBM with $102.2 million.
In addition, the 50 wealthiest e-moguls held unrealized stock options adding millions, even billions, to their wealth. The total unrealized options of the 50 CEOs added up to $11.7 billion, making these 48 men and two women wealthier, as a group, than 64 of the world’s nations.
No other major nation, even Britain and the other traditionally class-ridden countries of Europe, have inequality even approaching this scale.
On the average, U.S. salaries are the world’s highest. But this average is skewed by the huge incomes at the top. American factory workers earn less than factory workers in Germany, Canada, Belgium, New Zealand and Norway. At the bottom, pay scales for the lowest-paid workers are 6 percent higher in Japan, 32 percent higher in Britain, more than twice as high in Germany.
The reason, the report said, is partly due to higher minimum wages and stronger unions in most other countries. Another Labor Day report, issued by the respected Human Rights Watch in New York, said American law has created a “culture of near-impunity” that has left U.S. employers virtually free to ignore workers’ rights, punish workers who try to unionize and permanently replace striking workers.
Tens of thousands of workers here are regularly “spied on, harassed, pressured, threatened, suspended, fired, deported, or otherwise victimized” for exercising rights that often are guaranteed by international human-rights treaties that the U.S. itself has signed. More recently, the U.S. government has urged Third World countries to adopt labor standards that are routinely violated here.
“International human-rights law makes governments responsible for protecting vulnerable persons and groups from patterns of abuse by private actors,” the report said. “The United States is failing to meet this responsibility.”
Private business has always been more lucrative than government work, but the differences between the two used to be much smaller. In 1960, the average CEO, at $190,000 per year, made a little less than twice the president’s $100,000. By 1970, the gap was widening, with the president now up to $200,000 per year and the average CEO earning $548,000.
The gap persists at the Cabinet level and below, with potential corrupting effect on the government officials who hold these jobs, the report said.
It noted that Robert Rubin, as secretary of the Treasury, helped design the Financial Services Moderation Act of 1999 and lobbied Congress to pass it. This act removed the walls that traditionally separated banks, insurance companies and stock brokerages. An immediate beneficiary was Citigroup, a new financial services conglomerate formed of Citicorp, a bank, and The Travelers, an insurance company.
Rubin left office last October to become chairman of Citigroup, the company he helped create, at a total compensation package of $21.5 million. Although he was wealthy before joining the Clinton administration, his new income dwarfed his pre-Washington paycheck, not to mention the $99,500 he earned as Treasury secretary.
No one is accusing Rubin of corruption, but at the very least, the appearance of a conflict of interest exists and looks terrible. In other nations, government officials often go to top corporate jobs after retirement: the Japanese call this a “descent from heaven.” But nowhere else are the corporate rewards so great and, hence, the temptation for a government official to please the corporations that may end up signing his paycheck.
“There is an incentive, once you’re in government, to get out,” Cavanagh said. “Government people are using the knowledge gained in government service to make enormous salaries outside.”
Minds and skills, like hearts, go where they’re appreciated. Even many students at Harvard University’s Kennedy School of Government are opting for private industry. If corporations get the best, government gets the rest. This fact may explain the general public disdain for government these days and the sneaking suspicion among voters that Gore and Bush might not represent the best this nation has to offer.
The report said that over the next four years the U.S. government will suffer a potentially crippling loss of senior leaders. An estimated 65 percent of the Senior Executive Service–the high-level Civil Service managers who run many government departments, will be eligible for retirement.
These managers earn an average $120,000 per year, the report said, and “recruiters trying to fill these positions will be attempting to lure applicants away from private sector jobs that are likely to pay at least several times that amount, plus stock options.”
One solution is to give all government workers seven-digit salaries: this is neither wise nor likely. A better solution would be reasonable limits on income at the top. Equity would be served, and no one would starve.
