Are CEOs paid too much? Ruthless Criticism

Who gets paid how much and why in the free market economy

Do CEOs get paid too much?

In his 2007 State of the Economy speech, nobody other than President George Bush chastised his audience of Wall Street business leaders and entered the public debate about whether CEOs get paid too much. He found “golden parachutes,” the compensation packages for fired executives, to be particularly obnoxious. The president went on to urge them to show more restraint, warning that the failure to do so would harm the entire nation.

This is a chance to take a look at the very interesting question as to whether these people rightly deserve the money they make. It is said: sure, it’s only right that CEOs make a lot of money, but aren’t these men and women going too far? This outrage is strange: the question can only be asked if one knows, on the one hand, that there’s a big difference between the “low earners” and the “top executives,” but, on the other hand, has discovered a common characteristic that makes it possible to compare them. The common characteristic is supposed to be that both are paid money – at different rates, but still – for the services they perform for the company that employs them. Anybody who makes a stink about this issue thinks that pay should be a fair equivalent for the work they do – but that this is sometimes doubtful in the case of CEOs, or to speak in the manner of respectable opinion-makers: “Where in the global economy does fair compensation end and selfishness begin?” They have been completely deceived – because this question doesn’t take into account the real relation between pay and performance. There is no connection between pay and performance, nor can managers and workers be compared by the fact that both are paid. The whole idea of performance-based compensation is absurd.

The worker receives wages for putting his ability to work at the disposal of a business. Then the results of his work belong to the employer. He is employed only on the condition that his work is profitable for the company; in other words: he creates more saleable commodity value for the company than he takes home in wages. The worker works for the equivalent value of his wages during only one part of his working day; the rest of the day, he works for the entrepreneur – for free. That is the fundamental contradiction between the worker and the capitalist. The entrepreneur wants to constantly increase the unpaid part of the working day at the expense of the paid working hours, with the consequence that he reduces the part of the working day during which the worker works for the value equivalent of his livelihood. How big one part of the working day is and how big the other part is – this is determined by a struggle between the two sides and represent irreconcilable interests. Wage laborers can’t increase the size of their income through their performance, but at best by exerting pressure on the entrepreneur’s calculations by threatening to refuse to work. If modern unions think that they have gotten rid of this conflict through “social cooperation,” then that’s just a lie and changes absolutely nothing in the fundamental relationship. This has nothing to do with justice or measuring earnings by work performance. The performance for which workers are paid consists of delivering unpaid performance. This is the condition of their employment.

Executives are compensated according to entirely different principles: they are commissioned to perform the functions of the capitalist on behalf of the shareholders, and for their benefit. Their job is to make decisions about the work that others have to do, to oversee the workers and make sure they meet the performance objectives that enrich the owners. Executives actually bear a “heavy responsibility,” that is, they organize the appropriation of the unpaid work that the workforce has to carry out. They get a substantial share of the profits they rack up for the owners. They don’t need to fight for it because the owners know how valuable they are for them. Participation in the firm’s success is not only oriented by past successes; it can just as well be measured by the future success that the company aspires to under the auspices of the relevant CEO. A corporation that hires somebody who is a wickedly expensive to restructure or brings on board a world famous executive shows that it is confident in its position in the competition and demonstrates its financial strength. The CEO’s income represents a corporation’s size and aspirations to success – and is thereby a means of its competition for credit and investors. The CEO’s self-confidence is also procured: he sees himself as a commander of production in the struggle for the market and ascribes the success of “his” company to himself and his outstanding personality – because, in the end, he is the one who “creates jobs and value”! His self-confidence is quite correct in as much as he rises to his profession: only in this way can he demonstrate the ruthlessness and arrogance typical of these types, who are needed to forge powerful market conquering troops out of such slack material for underlings.

In the current debate about the size of their salaries, there is no criticism of the task of the managers, i.e. ensuring the accumulation of as much unpaid work as possible. There is only griping about the amount of their income, and the Commander in Chief has even become the spokesman for this discontent. It has not escaped President Bush that there is grumbling among the people about executive salaries, and he does not want to ignore it because the political competition – the Democrats – have scored points with it.

The discontent stems from the fact that wealth is growing in the country and there is talk of a “boom,” but – and this is the reason for the discontent – it does not “trickle down,” but just the opposite – it is observed with astonishment that “the poor get poorer and the rich get richer.” This shouldn’t be a surprise when capitalism is alive and kicking! Bush intends to fight this discontent. Of course, the first step is not to demand that wages be increased higher in the direction of the manager’s incomes, but to call on the assembled entrepreneurs to show “corporate responsibility.” The lower salary earners are already under control, so the higher ones should be as well. He does not want a law against exorbitant compensations – that would be counter to the freedom of the entrepreneurs; instead, he asks them to show “transparency,” that is, to exercise more modesty when enriching themselves:

“America's businesses have responsibilities here in America … A free and vibrant economy depends on public trust.”

The president, along with all the other politicians, makes only one request: against the reality that the executive’s job consists in nothing else but carrying out the interest of the company against the interest of the workers, he sets the ideology of cooperation: we are all really working together on a common project. It is stupid if the managers, in their appearance and in their salaries that they award themselves, act as if it is not so when they ostentatiously indicate the difference between themselves and their subordinates. Besides, the managers should just make sure that the beautiful sheen of a common project does not get unnecessarily tarnished. There should be a little more decorum and modesty in the announced enrichment because otherwise one expects a little too much from the people’s sense of justice. Conversely, if the CEOs are a little more reasonable and promise improvement, they have contributed to this moral task and also satisfied this sense of justice. The president indicates how important this is:

“Global competition can also lead to hardships for our workers and their families... The fact is that income inequality is real; it's been rising for more than 25 years.”

Even though the masses are not out in the streets in outrage, this statement shows how seriously the president takes their discontent – and the joke is: this has now been fully taken care of. Even the supreme leader of the nation has told these business leaders that they now have to behave decently. And then the culmination:

“…the salaries and bonuses of CEOs should be based on their success at improving their companies and bringing value to their shareholders.”

The real scandal is only the CEOs who are not successful in managing exploitation; they have not squeezed enough profitable effort out of their subordinates. When they are dismissed for this reason, they should not get too much money.

But does anybody notice that the president has actually taken the occupation of the executive – the organization of exploitation at the expense of the workers – out of the line of fire and given it a perfect defense? In this sense, there’s nothing left to criticize a successful executive for: he deserves what he earns for successfully increasing shareholder value; he makes a singular contribution to the “social well-being of our country.” And anybody still nit-picky enough to keep calculating only shows their crass social envy!