Neptunus Lex

No. Turns out it was Clinton-era Labor Secretary Robert Reich - a man whose uneven virtues I have previously sung - speaking in favor of letting markets and shareholders determine CEO compensation packages (link behind a WSJ subscription wall):

There’s an economic case for the stratospheric level of CEO pay which suggests shareholders — even if they had full say — would not reduce it. In fact, they’re likely to let CEO pay continue to soar. That’s because of a fundamental shift in the structure of the economy over the last four decades, from oligopolistic capitalism to super-competitive capitalism. CEO pay has risen astronomically over the interval, but so have investor returns.

The proof is in the numbers. Between 1980 and 2003, the average CEO in America’s 500 largest companies rose sixfold, adjusted for inflation. Outrageous? Not to investors. The average value of those 500 companies also rose by a factor of six, adjusted for inflation. In 2005, for example, Exxon Mobil reported $36 billion in profits. Its former chairman, Lee R. Raymond, retired that year with a compensation package totaling almost $400 million, including stock, stock options and long-term compensation. Too much? Not to Exxon’s investors, who enjoyed a 223% return over the interval, compared to the average 205% return received by shareholders of other oil companies, a premium of about $16 billion. Raymond took home just 4% of that $16 billion.

Of course, being an old class warrior, Mr. Reich can’t quite satisfy himself with the economic justification for a few CEO superstars to bring home the big bacon - he has to get all moralistic on us (proving while doing so that the left isn’t against the idea of morality as a basis for social policy per se, they just don’t like yours):

This economic explanation for sky-high CEO pay does not justify it socially or morally. It only means that investors think CEOs are worth it… If America wants to rein in executive pay, the answer isn’t more shareholder rights. Just as with the compensation of Hollywood celebrities or private-equity and hedge fund managers, the answer — for anyone truly concerned — is a higher marginal tax rate on the super pay of those in super demand.

Let us put aside for now the fact that the top 1% of wage earners (by adjusted gross income) paid almost 37% of the US federal tax burden in 2006 (and that the top 10% paid over 68% of the total). If shareholders and markets choose to reward brilliant innovators, risk takers and strategists with stratospheric remuneration packages, what kind of market deforming signal will the government send by standing there by the pay window smiling placidly and pointing a pistol?

And if successful entrepreneurs are to be punished by confiscatory tax rates, what other incentives can we provide to our most brilliant executives - people who actually contribute to the general economic well-being, creating tax generating jobs and taxable economic activity along the way (as opposed to cabinet secretaries and academics, who tend to deal in burdensome regulations and airy abstractions, or both) - sufficient to ensure that the innovation and agility remain the drivers of our own comparative advantage? Because the alternative would be competing on price with Bangalore-based call centers in a services economy.

Which, *shudder* .

And they wonder why people off-shore.

Update: You know, it occurs to me that this is really fundamental to one of the characteristic left/right divisions in this country, and it comes down to what you believe makes America great (if in fact, you’re not one of the goons running around setting retirement home flags on fire).

I think people like Mr. Reich instinctively believe in the power of government and people in government to make the country better. So long, you know, as the right sort of people are at the helm. Making the correct choices. For you.

Other people, your correspondent not least, believes the genius of our federal system is that at its best it tries its hardest to stay out of the way of the people who actually make things happen while still laying out a safety net for the less able.

This may be why people like Steve Jobs and Bill Gates create markets and rise to the top of their milieu by servicing them and everyone says, well, yeah, I understand that - it makes sense. And why on the other hand, every four (or eight years) we go through one of these dreary political primary processes trying to whip up enthusiasm for one or another gray suit in a line up of otherwise unprepossessing mediocrities.

Hmm.