Money Doesn't Attract 'Talent': It Merely Attracts Greed
When the banking and auto industries claimed they needed their exorbitant executive salaries to attract 'talent', we all laughed to think the 'best and brightest' were needed destroy the global economy. What actually did the job was greed, which is, after all, what money attracts.
Whereas the average ratio of CEO to worker salaries is about 20 to 1 in the rest of the industrial world -- and was about that in America only a few decades ago -- it has ballooned to 400 to 1 in recent times. Does this mean American corporate and banking executives are not only 20 times smarter than those abroad, but also 20 times smarter than the American executives who ran our economy before 1980?
Not very likely. But they're certainly 20 times greedier.
James Surowiecki points out that these overpaid executives were notable for making mergers, two-thirds of which ended up destroying shareholder value. Eighty percent of the new products they introduced lasted less than a year. As he points out, "the business landscape of the last decade is littered with CEOs who went from being acclaimed as geniuses to being dismissed as fools".
If American executives were willing for a century or more to work for reasonable salaries, what other than an obsessive greed makes it necessary to overpay them today?
Bach never got rich, Mozart died in a pauper's grave. Money didn't attract Cézanne, van Gogh, Rembrandt, Tolstoy, Dostoyevsky, etc., etc., the list is endless. You don't have to starve to be great at what you do, but money doesn't seem especially relevant. Nor is this lack of connection restricted to the arts. Einstein worked in the Swiss patent office to survive while he came up with his major contributions to science, and most of the authors of major inventions were poor before they made them. Small firms come up with 24 times more inventions than large ones with fat R and D budgets.
The truth is, money has nothing to do with talent in any field. The biologist Lewis Thomas once said that the need to feel useful, to make a contribution, is fundamental to human beings. People crave challenges, like to exercise their abilities. They also like to eat. But our culture -- or at least the least evolved elements of it -- have distorted this need by using money as the only criterion of worth, which has elevated some of the least valuable members of society to the most valued. Huge sums of money attract only the most neurotic members of society -- those who feel empty, who have nothing to give, who are sick with greed. The decline of America in the world is due largely to this failing. We can only hope Obama will inspire a reversal of this pathological trend.
(In his inauguration speech, Obama talked of a whole new way of doing things. To understand the cultural paradigm shift that engendered this change -- the shift that both Bush and the Taliban have resisted so fiercely, see my website for information on THE CHRYSALIS EFFECT: THE METAMORPHOSIS OF GLOBAL CULTURE).
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Thank you Philip Slater. I too have been saying for over a decade that the U.S. was on it's way down a dangerous road if we couldn't find a way to stop rewarding unbridled greed while placing disincentives on acting for the social good (a perfect example of this is giving bonuses to corporate bosses after they have laid off thousands of workers, rewarding them for ensuring short term profits for shareholders, with no real eye to preserving the long term for the company or society at large).
We can all prostilize but we need some action legally to put these people in jail.
Mr. Slater- That is the best piece I have ever read on the subject. Thank you, sir.
THANK YOU!!!!
I have said this for years.
People geared towards following money typically need the exterior validation and are insecure. They sublimate their interests to the exterior perception of success. How many little kids start dreaming of being a CEO? People that need a monetary trophy are motivated in a much sadder way than are folks who strive for excellence in whatever field stimulates them.
In America for the past few decades we seem to be celebrating the least emotionally stable, the least generous, the least creative and the least morally responsible. People who only find value in shiny things tend to be threatened by those who don't share their value system, which is why they hire according to the criteria that they understand. This is why our country is increasingly in shambles. We have valued absolutely nothing of substance and have promoted those very ideals (all of the way to the Presidency in the case of Bush.).
I will always remember what my father told me: Do something you love and the money will take care of itself.
Mr. Slater, thank you! This is exactly what I have been saying for a loooong time. Great article!
"Whereas the average ratio of CEO to worker salaries is about 20 to 1 in the rest of the industrial world -- and was about that in America only a few decades ago -- it has ballooned to 400 to 1 in recent times."
I would say that's nonsense. The average "CEO" of a small to mid size business (of which there are tens of thousands) makes no more than a mid-level executive in a large company (I know both types of people and their actual salaries) and the number is in the low six figures (probably 4-6 times the average worker and 2-3 times the average Ph.D.). One can always skew this statistic by selecting the data set... publicly traded companies, Fortune 500 companies, CEOs making $10 million or more... you get the idea. Are the highest salaries outrageous? Yes. But the averages by job title, no, they are not.
As for talent... a friend of ours with a Ph.D. in chemistry and a real gift for mathematics that she applies in the financial world will disagree with you. She isn't making millions, but she won't do 16 hour days and weekend standbys for half the money. She has enough other "low" paying options where she can do a 9-5 and still live quite comfortably. Same for any other exec with a science background that I know.
You would say that it nonsense because why? Because it doesn't mesh well with your opinion?
Sorry to tell you, Slater is correct . . . as he should be as a sociologist.
A lot of CEO pay is from stock options. So if the value of the companies stock goes up, which they did substantially in the 2002 to late 2007 bull market, the CEOs made a lot more.
Yes, there are lots of bosses of small businesses who make modest incomes, or even take a loss if their business fails. The "CEO salaries" in question are those of CEOs of large firms. He doesn't cite the exact statistic: big deal. It's not a skewed data set. It's not cherry-picking the examples that match a preconceived notion. It's a real difference between past and present and between the US and elsewhere.
Be sure to thank your friend and her colleagues for us. We really needed all those credit default swaps and absolutely opaque mortgage-backed securities. We couldn't have had Great Depression 2.0 without them.
One thing you're conveniently forgetting is that in many companies the lowest-paid jobs have been outsourced, either overseas or to "temp agencies" and what not. A company that used to have a custodian making $8/hr. suddenly outsources to a custodial firm. So that custodian is no longer counted in the statistics because he no longer is employed there.
Compare the average ceo salary in the US vs. the average ceo salary (total salary, including stock options, etc.) in Japan, W. Europe, Canada. There is simply no comparison. And don't try to tell me the American ceo is that more productive or valuable.
So the chemistry PhD you were talking about doesn't work hard? Tough! Get her out of there and we can "outsource"... whoops... I mean "right-size" her job to any of a million people in India, Canada, Brazil, etc. Those people would be more than happy to work for her pay and hours.
I thought we were comparing against workers? If you want to go down the chain to make a point, you might be right. There are, for sure, plenty of illegal Mexican immigrants slaving away for even less than even minimum wage.
"Compare the average ceo salary in the US vs. the average ceo salary (total salary, including stock options, etc.) in Japan, W. Europe, Canada. There is simply no comparison."
I don't know about Japan. I know about Germany and a lot of CEOs of small and medium sized businesses probably earn similar to their US peers (especially since they are also the business owners!). Where the divergence is is in publicly traded companies and the Fortune 500 etc.. But by numbers that's a select few and in many cases we don't really know how much these Germans and Japanese really make because it's not disclosed.
My point is that one can not generalize from the excesses to everyone.
"So the chemistry PhD you were talking about doesn't work hard?"
She works harder than I will ever work in my life. And therefor I don't mind that she earns more than I do. I think that's just fair. And since I happen to know her income and her expenses, I can tell you that at the end of the day she is not going to walk away covered in gold, either. The CEO of her company just might.
And who says she isn't from India?
:-)
Very trenchant analysis. I would like to add that these excessive pay packages are not at all a necessary consequence of the free market economy. To say so is a fairy tale, for the reasons you already pointed out: it would mean that the US was socialist before 1980 and it is not compatible with the cases of destruction of shareholder value. So it's a fairy tale.
This doesn't mean that the government must implement pay-caps, but it means that the pay-level is not the result of a terribly rational process. It very obviously lacks oversight and transparency. I have yet to hear a single argument why it should be possible at the same time to keep the principles governing pay a secret and still claim that it is market driven. Makes zero sense to me. But that's just me.
These greedy bass terds have ruined too many companies and lives.
if performance is the driving force for compensation, then they shouldn't get a dime! How can you be in charge of losing $billions and deserve any pay at all?
The merger mania that resulted in lots of insider millionaires did end up destroying lots of businesses.
Shareholders need to sue these guys for the return of every penny paid.
Oh, they're paid to take risks, don'tchaknow.
Funny--I got paid peanuts to risk life and limb every day back when I was a roofer.
I guess only certain kinds of risk qualify for compensation, huh? Life and limb--no big deal! Millions of dollars of other people's money--now we're talking!
Great essay. Very thought-provoking -- for people who think, that is. Please write more for HuffPost!
At some point, throwing more money isn't going to improve their performance. I have yet to see an actor become a better actor because they got $20 million instead of $10 million. Likewise, if you're the CEO making $20 million, are you going to do suddenly do a lousy job because your salary got cut to $10 million? If these guys really think they're worth that much, they should take compensation in stock options with a modest base salary.
I’m not sure if I am doing my math right, but the idea is more important.
If what you claim is true, that corporations for decades, paid out the 20:1 instead of the 400:1 they do now.
Merrill Lynch would have paid out approximately $10.5 million (you know what – lets be generous lets give those guys $21mil) instead of the $209 – the savings would be nearly $200 million!!
That gives the Top 10 Earners over $2mil a piece…distributed evenly, of course.
I’m guessing 2007 wasn’t a great year either – so now imagine $400mil.
Now calculate this for every bank and business that has asked for a “Bail-Out”
I bet that would cover much of the TARP money that has been requested.
The ritch have been irrisponsible and greedy - they wan' t to have thier cake and eat it too.
Ratio of average worker pay to average CEO pay over time:
1980: 42:1
1990: 85:1
1995: 141:1
1997: 326:1
2000: 531:1
2003: 301:1
2005: 411:1
2007: 344:1 (Ratio is 866:1 when minimum-wage-worker pay and CEO pay are compared)
2008: 364:1
*Ratio seems to have shrunk recently b/c the Institute for Policy Studies (IPS) and United for a Fair Economy (UFE) changed how they measure CEO options in 2007.
Download "Executive Excess 2008: How Average Taxpayers Subsidize Runaway Pay" and other reports by the IPS here: http://www.ips-dc.org/reports/
In 1980, CEOs got more of their pay in perks because tax rates were so high. During the mega-bull market in equities from the early 1980s to 2007, CEOs got paid to a large degree in stock options.
oooJade,
To Sum up:
The greatest heist of all time and REDISTRIBUTION of wealth and generational theft.
It seems that Obama's whole new way of doing things is to hire the same guys who caused this Depression! I read an article here on HuffPo a week or so ago where a fortune 1000 CEO admitted that most of his brethren had the abilities that it takes to run a moderately sized hardware store. I believe him. What gets them the big payday is old school ties, donations to the right politicians and an overwhelming belief in their god given right to have more than everyone else.
The title of this article makes me think of Jennifer Aniston, who made a million dollars an episode of "Friends".
I'm not a huge Anniston fan, though she was quite good in "Rumor Has It."
What she has going for her is that she hasn't driven America over the cliff to financial ruin. Her value truly is a free market phenomenon. The guys on Wall Street who made 100 million last year while tanking their companies--well that's not free market anything.
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