AMERICAN TOP EXECUTIVES - A NEW RULING CLASS?

I first became interested in executive pay when I came across this nugget in a WaPo article:

Between 1993 and 2002, total compensation paid by all public companies to their top five executives was $260 billion, according to a study by Bebchuk and Cornell University professor Yaniv Grinstein.

I didn't get the total number of executives but $260 billion is serious money, even by the standards of federal government spending. Over the same time period, the federal outlays for Science, Space and Technology total a bit over $179 billion in constant FY 2000 dollars (pages 51-52).


More recently, I came across this NY Times article about top executive's pay:

The average pay for a chief executive increased 27 percent last year, to $11.3 million, according to a survey of 200 large companies by Pearl Meyer & Partners, the compensation practice of Clark Consulting. The median chief executive's pay was somewhat lower, at $8.4 million, for an increase of 10.3 percent over 2004. By contrast, the average wage-earner took home $43,480 in 2004, according to Commerce Department data. And recent wage data from the Labor Department suggest that workers' weekly pay, up 2.9 percent in 2005, failed to keep pace with inflation of 3.3 percent.

The average top executive's salary at a big company was more than 170 times the average worker's earnings in 2004, up from a multiple of 68 in 1940, according to a study last year by Carola Frydman, a doctoral candidate at Harvard, and Raven E. Saks, an economist at the Federal Reserve.

About 81 percent of Americans say they think that the chief executives of large companies are overpaid, a percentage that changes little with income level or political party affiliation, according to a Los Angeles Times/Bloomberg survey in February.

The divide between executives and ordinary workers was not always so great. From the mid-1940's through the 1970's, the pay of both groups grew at about the same rate, 1.3 percent, according to the study by Ms. Frydman and Ms. Saks. They analyzed the compensation of top executives at 102 large companies from 1936 to 2003.

But starting in the 1980's, executive compensation began to accelerate. In 1980, the average chief executive made about $1.6 million in today's dollars. By 1990, the figure had risen to $2.7 million; by 2004, it was about $7.6 million, after peaking at almost twice that amount in 2000. In other words, executive pay rose an average of 6.8 percent a year.

At the same time, the growth rate slowed for the average worker's pay. That figure rose to about $43,000 in 2004 from about $36,000 in 1980, an increase of 0.8 percent a year in inflation-adjusted terms.

CORPORATIONS, meanwhile, projected that their own earnings would grow by an average of 11.5 percent a year during that 24-year stretch, by Mr. Bogle's calculations. In reality, he said, they delivered growth of 6 percent a year, slightly less than the growth rate of the entire economy, as measured by gross domestic product.

Chief executives "aren't creating any exceptional value, so you would think that the average compensation of the C.E.O. would grow at the rate of the average worker," Mr. Bogle said. "When you look at it in that way, it is a real problem."

I found a paper by Frydman that has a logarithmic graph (note the y-axis) of the changes in executive compensation from 1936-2003:



With the Bush regime changes to the tax code, this group of very rich people will get even richer in the future and may come to have an even larger voice in our public affairs.