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Corporate Croesus
The New York Times | Editorial
Tuesday 08 April 2008
As accustomed as we are to the other-worldly rewards lavished on captains of
finance and industry, it is still galling that the chiefs managed to finagle
a raise last year as many of the companies they led were in trouble.
A study published on Sunday by The Times of many of the biggest companies found
that chief executives who had held their jobs for at least two years got an
average pay increase of 5 percent last year, despite poor results at many of
their companies.
Net income at Office Depot fell 23 percent last year compared with 2006; its
share price fell 64 percent. Steve Odland, its chief, made nearly $18 million
all told - some 85 percent more than in 2006. With the share price of
Toll Brothers, the luxury home builder, plummeting, it seems reasonable that
Robert Toll, its chief, got no bonus. Still, the company took steps to ensure
that he gets one this year, even if home-building doesn't recover.
It's hard to square the conceit that chief executives are rewarded for
improving companies' performance with the fact that chiefs at 10 financial-services
firms in the study made $320 million last year, even as their banks reported
mortgage-related losses of $55 billion.
Meanwhile, the average earnings of typical workers have failed to keep up with
inflation in four of the past five years. According to the economists Emmanuel
Saez of the University of California, Berkeley, and Thomas Piketty of the Paris
School of Economics, average incomes in the highest-earning 1 percent of the
United States grew 11 percent year-over-year between 2002 and 2006. Incomes
in the bottom 99 percent grew by 0.9 percent annually over the period. This
year looks bad, too.
This polarization is producing a pattern of income distribution rarely seen
outside Africa or Latin America, and unheard of in the United States, at least
since the gilded age. In 2006, the 15,000 families in the top 0.01 percent of
the income distribution - earning at least $10.7 million apiece -
pocketed 3.48 percent of the nation's total income, double their share
in 1993.
Some analysts argue that the spectacular rise in executive pay is to be expected
in a marketplace in which bigger and bigger firms compete for talent. Others
suggest it has more to do with the ability of chief executives to manipulate
their boards to set their own pay.
In any case, the combination of inexorable income growth at the very apex of
society and stagnation everywhere else can serve no public good.
The Bush administration has focused its economic policies on cutting taxes
for the very richest Americans. Taxation needs urgently to become more progressive.
If the United States is to continue to embrace globalization, technological
innovation and other forces that contribute to economic growth, it has to share
the spoils better.
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