Executive Pay and Civic Culture

CORPORATE compensation is in the public eye these days, partly because of the pay and benefits enjoyed by the 12 chief executive officers of major corporations who, with other business people, accompanied President Bush to Japan.

Among those chief executives were Chrysler's Lee Iacocca ($4.65 million, not including stock, last year), American Express's James Robinson III ($4.9 million a year), and Phillips Petroleum's C.J. Silas ($5.2 million). General Motors CEO Robert Stempel, another member of the group, earns $2.1 million a year; he's the one who just announced that the money-losing carmaker would close a score of plants and lay off 74,000 workers in the next few years.

Critics of these "excessive" compensation levels point out that in the 1970s top executives earned about 34 times as much as the average worker; today the bosses make well more than 100 times that average. Analysts have also compared the pay of US executives unfavorably with that of Japanese business leaders. The CEOs of the biggest Japanese companies earn around $500,000 a year, and most Japanese CEOs receive only 10 to 20 times the average worker's salary.

By some other comparisons, though, executive pay doesn't seem exorbitant. The dozen CEOs who traveled with Mr. Bush together make $25 million a year. That's probably about the same amount made by the dozen members of some NBA basketball teams; less than the amount made by the half-dozen members of some rock bands; and far less than some individual entertainers, like Madonna, make.

Critics say that leaders of companies in the red like GM's Stempel shouldn't get high compensation. But is it worth it to pay a skillful executive $2 million to save his company $50 million in additional losses? Sure.

The point is that from an economic standpoint, gripes about executive pay may be unmerited. The market in CEO compensation works imperfectly, but it works. By objective standards, all but a few truly greedy CEOs probably are "worth" their paychecks; don't underestimate the difficulty of managing multibillion-dollar enterprises.

Nevertheless, for business, social, and moral reasons CEOs should voluntarily moderate their compensation. First, high executive pay may, especially in hard times, undermine worker morale and strain company cohesiveness, with a detrimental effect on performance.

More important, America today desperately needs to rebuild a culture of self-sacrifice, discipline, restraint, saving over consumption, economic and social reinvestment, cross-class solidarity, and stewardship for the future. These values are not incompatible with free enterprise; indeed, in the long run they will preserve free enterprise.

Prominent corporate executives must help foster these values through their own examples. They need to be leaders not only in America's economic growth, but also in its civic growth.

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