Is the age of highly paid executives over?

Business

Overpaid CEOs? Not at All. Higher Compensation for CEOs Means a Higher Quality of Life for All of Us

With the recent corporate scandals making the news -- think Enron or Martha Stewart -- the question of corporate greed has been at the forefront of the American consciousness. And the possibility of corporate greed is nowhere more visibly apparent than in the cases of the CEOs of major U.S. corporations. Very often, these CEOs are paid exorbitant sums -- along with fringe benefits and stock options -- to manage these companies. Some estimate that U.S. CEOs are currently paid more than 300 times the wage of the average U.S. worker (Brush). But this higher pay scale does not mean that CEOs are overpaid; in fact, it is evident that the growing gap between superrich CEOs and the average American worker is indicative of a rising quality of life for all of us.

Critics of rising CEO pay rely on specious arguments that challenge the morality of paying CEOs so extravagantly for the work that they do for major corporations. For instance, Michael Brush reports at MSN Money that CEOs at the largest U.S. companies made more in a single day than the average American worker could hope to make in an entire year (Brush). The implicit argument here is that there is something inherently immoral about this kind of wage inequality. How can we justify, the argument goes, such a gap when many people having trouble making ends meet? Worse, they point out, consider that adjusted for inflation the federal minimum wage is 7% lower than it was 10 years ago, while the pay for CEOs similarly adjusted is up 45% (Brush). With such a significant disparity, it is little wonder that the rich seem to be getting much richer, while the poor continue to struggle to survive.

But moral indignation is not justification for stripping CEOs of their wages. Yes, the gap between the rich and the poor persists and is even growing larger in many cases. The inflation adjusted wages of minimum wage earners and CEOs is quantifiable proof of that fact. However, the moral debate over the high pay of CEOs misses the key point in this issue: a gap may exit between rich and poor, but "there is more inequality in our society [...] because more people today are better off" (D'Souza 56). Capitalism is, after all, an ideal mechanism for the creation of wealth through the operation of free markets and free trade. It shouldn't come as a surprise, then, that CEOs of major corporations have reaped significant benefits from the mechanisms of capitalism. What critics of CEOs pay fail to admit is that it's not just the CEOs who are better off than they were twenty years ago. American society as a whole is much better off because capitalism has fueled incredible wealth building. The rate of growth of wealth is obviously much faster for CEOs of major corporations, but that does not undermine the reality that American society as a whole is improving its fiduciary situation. The CEOs in question are simply riding the leading crest of a figurative wave.

Consider the following facts. In 1980, there were about one dozen billionaires in the United States, 13,500 households that made more than $1 million a year, and only about 600,000 with a net worth of more than $1 million. Twenty years later, those numbers had increased dramatically even when adjusted for inflation and taking into account nominal population growth. In 2002, the United States boasted roughly 267 billionaires, 150,000 households that made more than $1 million a year, and more than five million households with a net worth greater than $1 million (D'Souza 56). These incredible increases cannot be accounted for simply with the charge of corporate greed or overpaid CEOs. Instead, we must accept the fact that in the United States affluence itself is on the rise. The income gap between rich and poor in the United States may well be increasing, but this is in large part due to the swelling ranks of the rich and well to do. More people than ever before are acquiring wealth at faster and faster rates, though admittedly few quite as fast as the CEOs of major U.S. corporations.

We can thank the effects of technological capitalism and its relatively wide embrace in the United States for this expansion of affluence. Poverty in the United States, accordingly, is increasingly defined only in relative not absolute terms. The extreme wealth of the growing class of the superrich in the United States -- CEOs included -- has had the net effect of filtering down through the strata of society to affect individuals at all levels. Today's excesses of society's elite become a part of the lives of average Americans tomorrow. For example, twenty years ago the cellular phone was exorbitant excess used only by the extremely wealthy. Today, it is so ubiquitous as to be unusual when it is not used (D'Souza 57).

In sum total, claims that CEOs are overpaid are misleading. It is certainly true that some CEOs may be overpaid for the work that they do. It is difficult to justify an extreme salary for an incompetent CEO. However, as a whole, any moral challenge to the right of a CEO to receive high compensation for his or her work must also be leveled at the growing body of American citizens who are also enhancing their affluence and increasing the extent of their wealth. It is counterproductive to the task of improving the quality of life for all Americans that we suggest that CEOs, as a group, should not be permitted to reap high rewards for their work (D'Souza 58). To do so implies that any individual or group should not be allowed to do the same. If critics of high CEO pay conclude that it is immoral to pay them so much, then they must also conclude that it is immoral for affluence in general to increase.