The Securities and Exchange Commission ought to stick to regulating securities and exchanges.
Instead, the Wall Street regulator has gone full social-justice warrior, enacting a new rule that would require companies with shares trading on the stock exchanges to annually publish figures calculating the ratio of executive pay to median worker pay. Despite the silly claims to the contrary, the rule, part of the deluge of new regulations promulgated under Dodd-Frank, does nothing at all to serve the interests of investors, or any other public interest. It is simply part of a campaign of political intimidation intended to force American business to adopt the preferences of American politicians.
Consider an obvious comparison: Ginni Rometty is the CEO of IBM, and Steve Easterbrook is the CEO of McDonald’s. Both are Fortune 500 companies, and they have roughly the same number of employees, 420,000-ish. The chief executives’ base salaries aren’t too far apart: $1.1 million for the gentleman from McDonald’s, $1.6 million for the lady from IBM. Easterbrook makes a half-million a year less in base salary than does Rometty, but it’s a safe bet that the median McDonald’s employee earns a good deal less than the median IBM employee’s roughly $90,000 a year. Which means that CEO with the lower pay in this case almost certainly makes a dramatically higher multiple of his median worker’s pay than does the higher-paid CEO.
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Of course, base salary doesn’t tell the whole picture when it comes to CEO pay. But taking account of the broader picture doesn’t actually make the comparison any more illuminating. As part of her most recent deal, Rometty gets an extra $3.6 million incentive on top of her base salary. The incentive isn’t being paid out because the board of IBM likes her and has warm feelings about her, but because under her management the company achieved certain goals related to net operating income, revenue growth, etc. Easterbrook’s compensation package includes an incentive of up to 160 percent of his salary if the company hits certain goals.
Needless to say, the domestic and global economic conditions that affect the success of IBM are not necessarily the same as those affecting the success of McDonald’s, and chief executives are not (necessarily) interchangeable commodities: You can’t just swap out an Easterbrook for a Rometty, and the number of candidates that might plausibly be expected to be real contenders for either position is relatively small. That often makes executive compensation an unpredictable matter: Easterbrook is being paid a good deal less than his predecessor, who earned around $10 million a year — or about 500 times the median employee’s pay. If the pay differential between sequential CEOs strikes you as being more interesting and perhaps more relevant than that between CEOs and teen-agers applying special sauce and operating fry-o-laters, then you, my friends, clearly are not SEC material.
The American Left is on an endless cultural jihad, aiming its invective both high and low.
American CEOs are generally paid more handsomely than their counterparts in, say, Scandinavia. Part of that is cultural — the civilization that produced the longhouse is different from the one that produced the rock star — and part of it is simple market size: CEOs of companies operating in a domestic market of 315 million often make more money than their counterparts in Europe for the same reason that the most successful used-car dealer in Los Angeles makes more money than the most successful used-car dealer in Muleshoe, Texas. It’s just a bigger game. And that shows up in Europe, too: All that Dutch egalitarianism comes up short when Ben van Beurden of Shell is negotiating a $25 million payday, which is, to no one’s surprise, about what the boss makes at Chevron.
But the American Left is on an endless cultural jihad, aiming its invective both high and low: hunters and Confederate-flag wavers and rural churchgoers on the one hand, CEOs and entrepreneurs and financiers on the other, with an aim toward the delegitimation of any American culture distinct from that prevailing in the office of the dean of students. The cultural forces at work there are fairly obvious — one part excruciatingly well-tuned status envy, one part “nail that stands out gets hammered” cultural conservatism, garnished with envy or condescension as the occasion demands — and are, in spite of their banality, quite powerful. The American education system from kindergarten through graduate school keeps the citizenry in a carefully cultivated state of economic illiteracy, which enables the Elizabeth Warrens and Bernie Sanderses of the world to base political careers on assumptions that are flatly and documentably untrue: that the rich are rich because the poor are poor and vice versa, and that making CEOs worse off would make ordinary workers better off. This is pure flat-earth economics, but a great many carefully miseducated people believe it.
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What Dodd-Frank and the SEC have done here is to establish a new national holiday for the Left: National Let’s All Have a Hissy Fit Over Meaningless Calculations Involving CEO Pay Day. I suppose National Unproductive Envy Day would be more precise. I’d suggest National Find a Convenient Scapegoat for All That Ails Our Economy Day, but that’s already taken by the other 364 days on the calendar.