Reason to worry about elite income

Market forces alone don't explain the trend

Published May 11, 2006 at midnight

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The distance between the compensation of elite corporate executives and average workers grows and grows, and its apologists continue to insist outsized salaries and benefits are merely a reflection of bargaining power in the marketplace.

And that is true to an extent. Yet it is also the case that some of those compensation packages reflect sheer indulgence on the part of corporate boards, which have lost a sense of perspective and restraint.

In a recent report, Rocky Mountain News financial editor David Milstead looked at pay for top executives at Colorado's 50 largest companies. He found that the median for them in 2005 was $5.31 million, or the equivalent of 131 employees earning the state's average annual wage. That's a very rarefied sample in a state with 2 million jobs, of course; and the amounts drop off rapidly, to a ratio of about 30-to-1 for the 262 executives whose compensation is listed in these companies' public filings.

Still, elite executive compensation in Colorado grew by 40 percent from 2004, while the average annual wage was rising by 4 percent.

Before we go any further, let's quickly offer two concessions to the income apologists.

First, top execs are hardly the only people making gobs of money. Athletes, Hollywood stars, trial lawyers on the class-action circuit, authors such as Dan Brown, top surgeons - there are plenty of Americans far removed from corporate suites who are piling up riches at least as fast as most leading executives.

Second, we no more possess a precise definition of "excessive" compensation than the next person. And the last thing we want is for government to step in to define that term, let alone try to cap salaries. Put an arbitrary cap on compensation, and there will be fewer start-up business success stories.

So why worry about the trajectory of compensation? Because benefit packages can undermine public confidence in private enterprise when they bear little relationship to company performance, as is sometimes the case. Because the packages are sometimes so large that they have a palpable effect in diluting the value of other investors' holdings. And because in their more extravagant forms, the packages reflect an aristocratic attitude of entitlement that offends America's egalitarian spirit.

The New York Times reported a prime example of that entitlement attitude this week in a story on CEOs who use corporate jets for personal trips - in the case of the head of Time Warner, to visit his vineyard in Tuscany!

We applaud shareholder attempts to publicize such outrageous uses of corporate revenue and property, and to get boards of directors to curb them. A man wealthy enough to own his own vineyard can charter a flight if rubbing shoulders with the riffraff in the first-class section of a commercial flight is too depressing a prospect.

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