The Wall Street Journal was in no doubt. Under the headline “Option Opulence”, it reported how the “bull market is bringing huge ‘paper’ profits to executives” of companies granting options. The New York Times was able to disclose that several inquiries were under way into the “untimely bounteousness” that had created a “new and resplendent class of workers whose emoluments exceeded those of most great owners”.
The quaint turn of phrase gives the game away. Those two articles, the first from 1955 and the second from 1933, show that public disquiet — outrage even — about bosses’ earnings is as old as the executive dining room.
The most recent great paroxysm in America was in the early 1990s, at the time when Graef Crystal published his book “In Search of Excess”. It produced a law that tried to cap the chief executive’s salary at $1m, using the tax system. The law caused some bloodletting, but proved a sensational failure: the $1m ceiling in effect became a floor as companies raised their managers’ basic pay to the threshold. Christopher Cox, chairman of the Securities and Exchange Commission, last year told the Senate banking committee that the law “deserves pride of place in the museum of unintended consequences”.
Just as misgivings about pay seem to crop up in every generation, so they crop up in just about every economy, too. Even Norway, which has one of the world’s most compressed pay scales, has introduced laws on disclosure and votes on remuneration (as indeed have most other European countries).
That people everywhere are perpetually irritated by the boss’s pay is a good reason to hesitate before drawing conclusions from the latest fuss. It is hard to say, for instance, whether people last year were more annoyed by Lee Raymond, the long-serving head of Exxon Mobil, getting a parting pay packet of some $400m or by the rise in the petrol price to $3 a gallon.
The public debate on pay draws heavily on individual examples. Such anecdotes make an impression partly because they are so dramatic and partly because there is no way of offsetting them by examples of people who have been paid just the right amount.
What the anecdotes show is that chief executives sometimes abuse their position and that boards sometimes pay them too much. That may be wrong, but it is not surprising. After all, the shift from imperial chief executive to options-rich manager is founded on the idea that companies are run not by philosopher-kings pursuing the common good but by people made of flesh and blood and with a keen sense of self-interest. Similarly, pay packages are complex contracts that may be drawn up in one set of economic circumstances and enacted in another. Any market will produce examples of people who overpay at the peak of a boom, say, and live to regret it when the bubble has burst. The question is what all these particular stories reveal about governance in general, and about its part in explaining the rapid increase in executive pay.