No Shame

All “10 of the top-paid C.E.O.s received at least $50 million last year,” according to Equilar, a firm that tracks executive compensation. Much of the “overall compensation came in the form of stock.” But, in addition, many “chief executives received generous cash bonuses, a form of compensation that does little to incentivize long-term performance.”

“It’s really an outmoded way of paying,” notes Robert Jackson Jr., a professor of corporate governance at Columbia Law School.

According to The New York Times, these ballooning payouts occur “despite sustained efforts to restrict excessive executive compensation . . . . Employers are no longer footing the tax bills for departing C.E.O.s who enjoy golden parachutes. Supplemental pension plans, which heaped benefits on executives regardless of how well the company did, are largely a thing of the past. Stock awards are mostly tied to performance, not simply awarded at regular intervals.” Moreover, there is more public disclosure of executive compensation, because, it was believed that if “companies have to report C.E.O. pay that is 1,000 times that of the average worker or justify growing pay in spite of weak results, perhaps shame will kick in.” A recent study concluded that C.E.O pay as “a multiple of the typical worker’s pay rocketed from an average of 20 times in 1965 to 295.9 in 2013.”

But The Times concluded, shame “hasn’t worked.” (See, “For the Highest-Paid C.E.O.s, the Party Goes On.”) We have to wonder why?

C.E.O.s actually form a club, a tight-knit oligarchy, and in that group there is only one measure of success. C.E.O.s know where they stand relatively to each other, and they want to be treated with respect. For one thing, many of them sit on the boards that determine the salaries of other C.E.O.s, and the boards make a point of knowing what the “standards” are. They may actually believe that compensation works as an incentive, but it’s probably more a matter of playing by the rules and being “appropriate” and “fair” to members of their group – in that rarefied world.

But there is another factor: the status and power of the oligarchy depends on large sums of money required to sustain their social position. In paying each other such immense sums, they are also ensuring the continuation and power of their class.

It takes a lot of money to pay for the armies of lawyers, accountants, advisors, consultants, lobbyists, and others enabling them to protect the wealth through which they maintain control of the political process, and guard their wealth against taxation. To be sure, they also spend a great deal of cash on their private homes and planes, their art collections, and so forth. And they also want to donate hospital wings, museum galleries, while funding their favorite charities. But the essential expense is about preserving the power and control of the oligarchy itself.

It sometimes seems as if our growing wealth inequality is a mystery, an insoluble problem. But simple changes in the tax code could do much to levy reasonable rates on the income of oligarchs’, eliminate tax shelters, and deplete the estates the super-wealthy pass onto their children.

The “invisible hand” of oligarchy keeps that from happening.