An International Perspective On Corporate Pay

Posted by on October 14, 2011

Our guest author today is Michael Tims, associate professor of biology at Montgomery College in Takoma Park, Maryland. Some of his writing can be found on his science blog, Bardo’s Calculus, as well as at the Hyattstown Mill Arts Project, where he is a board member.

The growing wealth gap in the United States has worried some commentators for years. The length and breadth of the economic crisis, and the suffering it has brought with it, have moved those concerns into the mainstream. One aspect of this development that warrants more attention is the connection between declining rates of unionization, and the incredible gap between the pay of workers and their bosses.

As corporate resistance to unions has increased and union density declined, the discrepancy in pay between management and worker has grown extreme. Since the mid 1970s, the average multiple of CEO pay to worker pay has increased from 28x in 1970 to 158x in 2005, to almost 400x in 2010. . Their average “total realized annual CEO compensation” is currently $12 million, according to Governance Metrics International. During this same period, worker pay has stagnated and fallen behind inflation, despite an historic rise in workforce productivity

This phenomenon of high pay disparity in the industrial world is uniquely American, with the next highest countries being Britain (25x), Sweden (13x), Germany (11x) and Japan (10x). Claims that these pay levels represent success on the part of the CEO appear to be misleading.

Several legal researchers have shown that this growth in executive pay correlates negatively with a company’s profit and growth in market value.

In the U.S. the pay gap exists, in part, because the myth of trickle down pervades our economic policy making debate. This period of increasing pay disparity corresponds to loss of unions and the landscape of the American workforce approaching that of a non-industrial third-world societies rather than those of the first world, industrial economies.

Other structural changes at the root of this pay gap include the recent historical increase in judicial protection of corporate rights, the decentralization of capital markets and the uncoupling of corporate accountability from local economies.

A recent Shanker post on “Decent Work” discussed how social and political policy can help create real upward mobility without sacrificing social protections. As it stands now, we have neither, unless you are in the top 1% of earners. We have a choice and our collective voices need to be heard above the small, highly organized tea party fringe. Depending on who has the last say, “Made in America” will take on very different meanings.

- Michael Tims


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