Executive pay and equality -- a few facts

Discussion in 'Economics' started by spect8or, Apr 22, 2007.

  1. From time to time, with fairly consistent regularity, the media wring their hands over executive pay levels and the bitter inequality in America they represent. Seldom mentioned, however, is how American executive compensation stacks up against the rest of the world.

    A report by consulting firm Watson Wyatt (in Spanish, but there's probably an English version somewhere) found that senior executives in the US were paid only 5.3 times as much as middle managers, while the differences in salary levels in other countries were far greater: Argentina 20.3 times; Brazil 17.3 times; China 10.5 times, Spain 6.1 times and Mexico an astonishing 30.5 times. (The report notes that both fixed salaries and end of year bonuses were used in the calculations.)

    The report made a similar comparison between senior non-professional administrative workers and junior, inexperienced professionals on the one hand [Group A], and more senior managers on the other [Group B].


    As can be seen, pay levels in the US are far more equal than in most other comparison countries.

    Perhaps that's something to point out to AFL-CIO drones when they complain about how much executives have "raked in" (they actually use that term on their "Pay Watch" site). The evidence clearly suggests that upper management in the US is being compensated at a reasonably higher rate than middle management (who, in turn, receive only reasonably higher compensation than the bottom).

    If it's truly inequality that is the concern, a better option would be simply halting immigration rather than moaning about executive pay. Afterall, it makes little sense to claim to be battling inequality all the while importing ever increasing amounts of it. On the other hand, if it's Mexico or Brazil that is the model to aspire to, things are proceeding according to plan.
  2. Also, I might add, those American numbers look especially good for a country with a Gini co-efficient of some .43 or so. [Gini represents the inequality of income distribution in a country with a figure between 0 and 1, 0 being completely equal, 1 completely unequal.]

    More "socialistic" European countries -- even "wild" formerly communist ones -- tend to come in at a more equal ~.3-.35, so a tighter spread in pay levels is to be expected.

    The tight US spread is rather unexpected. To me, that would suggest America does a good job of presenting Americans with opportunities to acquire the kinds of skills and education that the capitalist system is adept at finding ways to reward. (Of course, America also does a good job of "punishing" those who fail to acquire such skills and education.)

    Nevertheless, continuing immigration seems set to push the American Gini up into Brazil/Mexico territory. In fact, I think one could make a good case that the rise in the American Gini since the 70s is in large part attributable to the rise in thirld world immigration since 1965 Act opened America to the world. I give it 12 years to cross .50.
  3. I would say this study is quite mis-leading. What are the definitions of senior executives? The results depend on the definition! A better approach is to look at the pay of CEO vs average employee pay.

    Also, the numbers on China is definitely wrong. The corruptions in China is partially due to the fact that the CEO's in China, especially those of state-owned companies, do not get paid much in terms of salary (however, this is changing, for better or for worse).
  4. /

    Why would that be a better approach? Because it avoids definitional ambiguities or because it makes better propaganda copy?

    Really, though, I think comparing gradations is far more telling than comparing the head honcho with some unskilled shelf-stacker -- I mean, if you want to know what the real story is.

    So what are the real China numbers then?
  5. Definition aside, most companies in China nowadays are private companies, neither state-owned nor listed in any stock exchanges. Even if you are a high official in those companies, you don't get paid much unless you are also an owner. This is also the case in Hong Kang.

    I wonder where did the spanish study got the numbers about China.
  6. I laugh at all these people crying about executive pay....you want to save money? Fine, have a contest like Ben n Jerrys did and let that guy run your company....but don't go crying when you stock and profits slide...also, with SARBOX, the risk of being CEO is not worth the reward unless the $$$ are high