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The Spectacle Blog
The Washington Post ran the first article in a series about “breakaway wealth” in America on Saturday. The story presents evidence that business executive pay is driving a rise in inequality in America.
The author, Peter Whoriskey, uses the example of the CEO of Dean Foods. In the '70s, the CEO earned the equivalent of $1 million a year today, and was satisfied with it. The current CEO, Gregg Engles, makes 10 times as much, has access to a private jet, and lives in a $6 million house.
Whoriskey then presents two studies that, taken together, make the case that higher executive pay (which Whoriskey hints is a product of normalized greed) is generating massive inequality. First, the rich are getting much richer:
In 1975, for example, the top 0.1 percent of earners garnered about 2.5 percent of the nation’s income, including capital gains, according to data collected by University of California economist Emmanuel Saez. By 2008, that share had quadrupled and stood at 10.4 percent.
The phenomenon is even more pronounced at even higher levels of income. The share of the income commanded by the top 0.01 percent rose from 0.85 percent to 5.03 percent over that period. For the 15,000 families in that group, average income now stands at $27 million.
Second, those gains appear to be going largely to executives:
Sure, people like Bill Gates and LeBron James made lots. But it wasn’t at all clear who the other roughly 140,000 earners were in the top 0.1 percent - that is, people earning about $1.7 million a year, including capital gains.
Then, late last year, economists Bakija, Cole and Heim completed their massive analysis of income tax returns.
Little noticed outside academic circles, their research focused on the top 0.1 percent of earners. From those tax returns, they could glean a taxpayer’s occupation, which is self-reported. Using the employer’s tax identification number, the researchers found the industry they were employed in.
After executives, managers and financial professionals, the next largest groups in the top 0.1 percent of earners was lawyers with 6.2 percent and real estate professionals at 4.7 percent. Media and sports figures, who are often assumed to represent a large portion of very high-income earners, collectively made up only 3 percent.
“Basically, executives represent a much bigger share of the top incomes than a lot of people had thought,” said Bakija, a professor at Williams College, who with his co-authors is continuing the research. “Before, we just didn’t know who these people were.”
This is a lot to think about. Now, although the tone of the article suggests otherwise, there is nothing inherently wrong with executives getting bigger houses and the use of jets, especially if they’re not gaining at the expense of others. Whoriskey provides some anecdotes that suggest that the folks lower on the corporate ladder are struggling, but they are far from convincing. As Daniel Indiviglio notes, the hard-luck case Whoriskey finds is a Dean Foods worker who makes about $47,000 per year — he could be doing better, but it’s not exactly a sob story.
And if the point of the piece is to give readers pause about “breakaway wealth,” the CEO of Dean Foods is a bad example. Although a $10 million yearly salary is enough for anyone, it’s not even in the same ballpark as the highest yearly earners. In fact, no executive salaries are, not even the salaries of investment bankers. The highest earners are hedge fund managers. The slideshow accompanying the Post article includes a few of these managers, for instance, George Soros and John Paulson. In 2010, according to the New York Times, Soros made $450 million for himself: 45 times as much as Gregg Engles. John Paulson made $4.9 billion: 490 times as much as Engles.
The Bakija, Cole, and Heim study that Whoriskey cites captures the rise of the ultra-rich financiers: the number of financial professionals in the top 0.1 percent of earners has gone up drastically since the '70s, and their share of the national income has nearly quadrupled. Clearly hedge fund managers have played a significant role in the overall “breakaway” of the wealthy.
If the breakdown of social norms restraining greed is really to blame for the rise of inequality at the top of the economic ladder, the few millions earned by Gregg Engles are nothing compared to the scandal of the billions raked in by Soros and Paulson. That fact doesn’t lend itself as easily to stories about exploited workers and greedy executives.
View all comments (16) | Leave a comment
More Blog Posts by Joseph Lawler
http://spectator.org/blog/2011/06/20/are-greedy-corporate-executive
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Handy| 6.20.11 @ 5:26PM
No one begrudges a CEO his well-earned income. The trouble is that so many of them do not earn those dollars.
I remember that a company I worked for gave $10 million to charity one year. That meant over $5K per salaried employee. Instead, we got a cost of living incease of 3%.
CEO doubled up to about $5 million, though. His compensation alone made us a loser of over $2 million that year. Go figure.
crazt| 6.20.11 @ 5:35PM
Shareholders, not employees, are harmed by excessive executive compensation. Until shareholders take their money and shop elsewhere executives will continue to pay themselves what the market allows.
JimH| 6.21.11 @ 8:05AM
Currently unless there is an owner of a significant fraction of a company’s stock, it does not pay the individual shareholder to become involved in the running of the company the shares represent, and hence, no real oversight on the part of ownership. I don’t know if this is a flaw in the structure of the corporation in general and associated laws, but something is needed to concentrate the minds of the owners and to hold the executives ( who are really no more than jumped up managers) accountable.
Occam's Tool| 6.20.11 @ 5:49PM
It depends on what value the corporate exec brings to the shareholders. Buffett, for example, is worth far more than his $100,000 salary. Bill Gates and Michael Dell were also more than earning their pay at their peaks.
Michael L. Hauschild| 6.20.11 @ 6:41PM
Be still my heart.
Palin/Bolton - Bolton Palin 2012
http://www.nationalreview.com/.....bert-costa
Bob K.| 6.21.11 @ 2:04AM
????????????????
Kevin Compton| 6.20.11 @ 11:37PM
Dave Dillon, the CEO of Kroger makes over $10 million/ year. I work for the Fry's Foods Division in Arizona. Since 2004 the only pay raise given to hourly employees was a one time 25 cent per hour raise and this was only given to full-time employees that had reached their maximum hourly rate. So, are executives getting their pay at the expense of others? If Kroger's/Fry's is typical, then yes.
Bob K.| 6.21.11 @ 2:14AM
I wonder what the Executives of Chinese companies make in comparison to their employees? China is, of course, supposedly a Communist country, but I have wondered if it is not slipping back into Feudalism?
Is that what the Washington Post is trying to warn us against?
Imagine an entire nation run like a worldwide corporation, having to answer to major shareholders like Soros and Paulson!
Bill Hussein O'Stalin| 6.21.11 @ 2:17AM
The real reason for income disparity is that the ruling elite keep taking more and more in taxes which gives the people at the lower economic scales little chance or opportunity to make and keep any income. The poor usually end up paying it all in one way or the other.
PCC| 6.21.11 @ 5:34AM
The 1970's must have been a much more corporate world, and much less entrepreneurial world, than the one we live in today.
As a general proposition, I salute entrepreneurs who have made outsized fortunes, and wonder where boards of directors were when executives (employees) made outsized fortunes.
Shamus| 6.21.11 @ 7:25AM
Greedy politicians steal trillions of dollars. CEO's pale by comparison.
Cheap golf clubs | 6.21.11 @ 8:21AM
so nice post
Ryan| 6.21.11 @ 8:48AM
My take:
First, before I go on my little rant, I need to state the caveat - the government shouldn't be making some sort of salary mandates.
That being said, it's just BAD business for the top-level guys at any company to make so much without making sure those down the ladder are getting a fair shake. Several earlier posters pointed to this matter. There's a certain level where an exec making a certain % above what the lowest level employee makes helps a business to work well because it can get good employees.
Unfortunately, those execs - particularly in banking - have government clout for when their businesses fail or are severely hampered, they get bailed out.
It's NOT capitalism/free market economics - which many on the left just don't get. It's CORPORATISM.
William| 6.21.11 @ 5:31PM
We need a better word than "corporatism" for the symbiotic relationship between Big Government and Big Corporations. I don't think that word conveys the distortion and corruption that result from the interplay of these interests. The same is true for the intersection of big government with other powerful interests, e.g., unions, farm interests, or you-name-it.
The recent book "Reckless Endangerment" is a damning example of how this works, and it started with business interests joining government to achieve an apparently worthy goal: increased home ownership among the lower half of the population. Unfortunately I don't think we'll hear much about this book - the people it exposes have too tight a grip on our government and society. Even the media does not want to mess with them.