Saturday, April 12, 2014

It's executive pay season


And once again the senior executives of America's largest corporations have managed have skillfully surmounted obstacles, avoided minefields and valiantly fought their way through to copious increases in their compensation. As always, these increases should not be considered signs of any accompanying ability. That was eliminated a long time ago.
But putting aside whether those particular metrics for aligning pay with performance make sense (or, rather, turning over that discussion to Gretchen Morgenson in her Fair Game column), the elegant machine itself would seem to have a dark side. Some say, in fact, that it is the main engine of inequality in America today.

The current system of executive compensation, with its emphasis on performance, can theoretically constrain pay, but in practice it has not stopped companies from paying their top executives more and more. The median compensation of a chief executive in 2013 was $13.9 million, up 9 percent from 2012, according the Equilar 100 C.E.O. Pay Study, conducted for The New York Times. The 100 C.E.O.s in the survey took home a combined $1.5 billion last year, a slight rise from 2012. And the pay-for-performance metrics — particularly the idea of paying executives with stock to align their interests with shareholders — may even have amplified that trend. In some ways, the corporate meritocrat has become a new class of aristocrat.

Economists have long known that high executive pay has contributed to the widening gap between the very rich and everyone else. But the role of executive compensation may be far larger than previously realized.

In “Capital in the 21st Century,” (Belknap Press), a new best seller that is the talk of economics circles, Thomas Piketty of the Paris School of Economics makes a staggering observation. His numbers show that two-thirds of the increase in American income inequality over the last four decades can be attributed to a steep rise in wages among the highest earners in society. This, of course, means people like the C.E.O.s in the Equilar survey, but also includes a broader class of highly paid executives. Mr. Piketty calls them “supermanagers” earning “supersalaries.”

“The system is pretty much out of control in many ways,” he said in an interview.
It's easy to kick one thru the uprights when you set the goal posts and your friends on the board will move the field spot for you.

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