CEO Salaries

Peter McGowan is chief executive office of the Safeway company. In 1989, Safeway felt the recession and threw 50,000 employees out of work. But the same year McGowan enjoyed a 40-percent raise, bringing his salary to $1.2 million. This is topsy turvy economics. And it's just what the Securities and Exchange Commission wants to stop. The SEC is Wall Street's watchdog agency, and it recently ruled that shareholders in a company can now vote on the salaries of CEOs. The way the system currently works, a CEO asks his friends and associates to sit on the company's board of directors; the directors then set the CEO's salary, as well as their own. It can become a cozy little system insulated from the ups and downs in the company's economic health. Here are some other examples. General Motors has said that due to losses last year, it will be forced to lay off 70,000 people. But in the same year, it paid its top executive $2.1 million. Ford has announced that it lost $2 billion last year. But at the same time its top executive pulled in a salary of about $2 million. Chrysler has checked in with losses of nearly $800 million for last year, yet it paid Lee Iaccoca a salary of $4.5 million. This doesn't make economic sense. People perform best when they have incentives. In the work place, that means tying salary to performance, something Jack Eckerd and I propose in our new book, Why America Doesn't Work. And with the new SEC ruling, shareholders will have a chance to evaluate executives' salary against their performance. The ruling makes business leaders nervous. They say they need to offer huge compensation packages in order to attract top executive talent. And they have a point. It is harder to attract top talent these days--because the job itself is getting harder. When a company expands and diversifies, the job of the CEO becomes incredibly complex, as he organizes and co-ordinates all the different divisions. It takes a lot more business savvy to be top dog in a multinational corporation than in a Mom and Pop corner store. But while the demands on CEOs are increasing, our education system is declining, turning out people who are less prepared to fill these executive positions. Newsweek magazine recently reported on the latest international test, which showed the United States scoring lower than most other industrialized countries in math and science. So what we're seeing in CEO salaries is simple supply and demand: When something is scarce, its price goes up. When business talent is scarce, you have to pay more to get it. But that's no license for CEO salaries to go up even when the company is going down. The CEO who is not performing ought to feel the pinch right along with his workers. Instead of being insulated with special perks and privileges, he should become a servant to his workers. That's the biblical model of leadership. So I applaud the SEC's new ruling. It's one way to break into the cozy circle of directors and CEOs and call them to accountability. In a fallen world, we're all prone to take what we can get. And so we all need structures of accountability--in business, in government, in the Church--to keep our fallen nature in check.  

02/28/92