Are Corporate Titans Really Worth the Billions They Suck In?

By Sarah Anderson and Sam Pizzigati, AlterNet. Posted September 12, 2007.

In the span of just a few weeks, two enterprises that have become institutional fixtures on the American scene -- Chrysler, the Big Three automaker, and the Ford Foundation, the philanthropic pace-setter -- have named new top executives.

Neither of the two has any experience in the industry he now labors.

Robert Nardelli, the new Chrysler CEO, has never before worked for a car company. He comes out of General Electric and a brief, unhappy stint at Home Depot. Luis Ubiñas, the new Ford Foundation president, has never before run a nonprofit. He spent the last 18 years at McKinsey & Company, the consulting firm, working mostly with the high-tech sector.

No matter. In the United States today, you don't need to have experience in the work of an enterprise to lead it. You just need to be a leader. You need to have demonstrated a capacity to innovate and inspire, analyze and imagine. If you have these leadership skills, you are considered able to perform successfully as a leader almost anywhere. A general can become a school superintendent. A media entrepreneur can become a mayor. A credit card executive can run a computer company.

Leadership, in short, has become a marketable skill set. We have academic centers that teach leadership, headhunters who search for it. Leadership skills, and leadership skills alone, can make you an eminently hot commodity in the job market.

But this leadership market operates in a curious fashion. It has no "going rate." Some individuals with leadership skills in our contemporary United States -- those who sit atop America's business enterprises -- are capturing far more compensation for their labors than those in other fields who appear to hold the same exact leadership skill set.

We have just helped complete the 14th annual edition of Executive Excess, the Institute for Policy Studies analysis that typically concentrates on the pay gap between America's top corporate executives and our nation's workers. This time around, we took a somewhat different approach. We didn't just compare CEO and worker compensation. We compared America's business leaders with leaders elsewhere in American society, leaders in sectors ranging from nonprofits and the military to the federal executive and legislative branches.

What did we find? The pay gap between business leaders today and their leadership counterparts in other walks of American life is now running wider -- often phenomenally wider -- than the pay gap a generation ago between business leaders and average American workers.

Back around 1980, big-time corporate CEOs in the United States took home just over 40 times the pay of average American workers. Today's average American CEO from a Fortune 500 company makes 364 times an average worker's pay and over 70 times the pay of a four-star Army general.

Another example of our contemporary leadership pay gap: Last year, the top 20 earners in the most lucrative corner of America's business sector, the private equity and hedge fund world, pocketed 680 times more in rewards for their labors than the nation's 20 highest-paid leaders of nonprofit institutions pocketed for theirs -- and 3,315 times more than the top 20 officials of the federal executive branch, an august group that includes the President of the United States.

The gaps become even more profound when we look at the leaders of Congress, an institution whose pay policies have down through the years regularly fueled public outrage. Last year, the pay for the 20 highest-ranking leaders in Congress, taken together, totaled less than the personal earnings of the corporate CEO who ranked 348 th in the Associated Press's compensation survey.

Once upon a time, we didn't have this sort of leadership pay gap in the United States. Indeed, into the 1970s, typical big-time CEOs made only modestly more than Presidents of the United States.

One big reason why: steeply graduated federal income tax rates. Throughout the 1950s, the Eisenhower years, the top marginal tax rate on income over $400,000 hovered at 91 percent. In the 1960s and 1970s, that top rate never dropped below 70 percent on income over $200,000.

These tax rates sent corporate boards a powerful cultural message. If they were paying their top executives over several hundred thousand dollars a year, they were paying too much. And corporations by and large heeded that message. CEO paychecks didn't start soaring into the compensation stratosphere until the early 1980s, with the coming of the Reagan Revolution.

In 1981, Ronald Reagan's first year in office, the top federal marginal rate on America's highest incomes dropped to 50 percent, then fell again five years later to 28 percent. The top rate has bounced around, within a narrow window, ever since and now stands at 35 percent, just half the top rate in place during the Johnson, Nixon, Ford, and Carter administrations.

These top rates, to be sure, don't reflect what high-earners actually pay in taxes, once they exploit all the loopholes they can find. In 2005, the most recent year with IRS data available, the highest earning 0.01 percent of tax filers, all 13,776 of them, reported an average $27.3 million in income. They paid just 20.9 percent of that in federal income tax.

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Sarah Anderson directs the Global Economy Project at the Institute for Policy Studies. Sam Pizzigati , an associate fellow at the Institute, edits Too Much, an online weekly on excess and inequality. They are co-authors of "Executive Excess: The Staggering Social Cost of U.S. Business Leadership."