Are executives of large U.S. corporations being paid too much? And are top salaries going to the right officials?
Those questions are raised by two recent studies of major companies worldwide. The findings contain some potentially valuable hints not just about justice at the pay window but about how America can do a better job of promoting its own economic growth and competing abroad more effectively.The survey on CEO - chief executive officer - salaries was done by Industry Week magazine and showed that such pay is far out of line when compared to top managers in other countries.
The magazine study showed that the typical executive of a mid-size to large U.S. company makes up to 150 times more than the average production worker. In Europe, the ratio is about 20 to 1 and is 15 to 1 in Japan. Yet it is the European and Japanese companies that appear to be having more success.
Not only is the discrepancy in CEO salaries greater than in Europe and Japan, but the pay is a source of anger among workers and even middle-management in American companies, some of whom called it a "national scandal." And in many cases, the salaries and bonuses bear little relationship to company performance.
What is the justification for such large salaries? What is the money purchasing? "You can buy a lot of research and development or new equipment with the unjustified millions that top execs are being paid," one company official told Industry Week.
The other survey about management pay was done by a private consulting firm that compared large U.S. companies with those of similar size in Germany and Japan - to see who was getting the top salaries.
The study showed that in American companies, the biggest paychecks tended to go to financial officers, which is consistent with the "bottom line" mentality of quick profits. In contrast, Japanese firms tended to give larger salaries to personnel managers, while in Germany the top pay went to executives in charge of research and development.
In a world where competition is often more global than domestic, and where Germany and Japan generally do better than anyone else, the study points up possible weaknesses in the American approach.
U.S. companies have been faulted by Japanese observers for being so obsessed with profits for the next quarter that decisions are calculated for the short term. Yet long-term planning and investment are crucial for long-term success.
Both Germany and Japan hold sway in international markets because they spend with one eye on the next decade instead of the next financial report. It hasn't hurt them at all - in fact, just the opposite. There's a lesson here that U.S. business leaders should take to heart.