Three to five decades ago, compensation for high-ranking business executives was at a level that would seem outright minimal today: 10 to 20 times the pay of the average worker. That ratio, today, is around 500. There’s no doubt about it: top-tier executive pay in large corporations has skyrocketed. Yet the quality of people who become corporate executives is demonstrably terrible: Carly Fiorina comes to mind as a bad one, but far from the worst. To my limited knowledge, she didn’t even break the law, likely putting her in the middle third as far as corporate executives go. In an era of Jeff Skillings and Bernie Madoffs, it seems hard to justify the enormity we observe in executive compensation.
Decades ago, when executive pay was low by today’s standards, companies and the economy were well-managed. Now we pay an order of magnitude more, and what we get is pure, unadulterated dogshit. These trends may be unrelated, but I suspect otherwise. The price-quality curve, as observed in the compensation of corporate executives, has a negative slope, contrary to what conventional economics would lead us expect. This “mystery”, I’ll note, has a relatively straightforward explanation.
The general principle of “pay more, get more” is a result of two factors. The first is that more resources can be committed to a higher-priced product. This is, by far, the strongest contributor to the positively-sloped (“normal”) price-quality curve that most goods exhibit. More labor can be put into a $50,000 car than a $20,000 one. This is intuitively obvious with regard to physical goods, but I would argue that it also applies to human labor, up to a point. People who are paid more can devote more energy to their jobs, having fewer personal worries to distract them. The second, less potent, factor in producing a normal price-quality curve is the increase in competition: pay more, and more suppliers emerge.
There is, almost certainly, more competition for high-level executive jobs in 2010 than in 1960, due largely to the increased pay. But this style of “competition” is not productive. It does not inspire people to be better, more innovative, or smarter, but nastier and more political instead. In fact, virtually every economic study ever done has shown that, while competition between firms leads to a fairer and more innovative market, and this is why monopolies are generally considered undesirable, competition within firms is utterly destructive. It leads to failures of communication, dysfunctional teamwork, bad promotions, backstabbing and horse-trading that preclude any real work from getting done. It encourages people to work longer hours and therefore “harder” (and to risk burnout, nervous breakdown, and other stress-related health problems) but not to work better or smarter. Unless office politics is to become a salable good, it simply does not work. It’s poison.
On this note, look at recent evolution of American corporate life. Work life within companies has become more competitive, with policies like Jack Welch’s “rank and yank”, once considered barbaric, becoming mainstream. Partnership in major law firms, once available as a default to decent performers, is now available only for the few able to dedicate enormous amounts of energy to political horse-trading that has nothing to do with the practice of law. The prospects of professors seeking tenure are even worse, and the politics notably criminal. In short, a whole mess of industries are becoming hierarchical, cutthroat, and hellish, to such a point that very little actual work is getting done, and what is getting done is of low quality due to the enormity of political bullshit people have to stomach in these industries. It’s now a given that most corporate denizens are destined to be career losers, forever underpaid and unrecognized, and that one’s real job is to avoid this fate through any means (ethical, legal, and industrious; or utterly otherwise) available.
We don’t get “the best and the brightest” managing large, billion-dollar corporations. We get psychopathic narcissists drawn by the allure of power and an eight- or nine-figure salary. We don’t get the sort of selfless, enlightened, pragmatic people we want in positions of leadership. We get politically-astute, influence-peddling assholes. Perhaps surprisingly, we’d do better to pay corporate executives far less, in which case we’d stand a better chance of drawing in people who actually want to serve and lead their companies– imagine that!– not narcissists who want to loot them.
If competition within firms is ripping them apart, what about the competition between firms? It hardly exists at all. The CEOs of supposedly “competing” companies attend the same parties, frequently serve on each others’ boards, and have already promised each other safe landings in the event of career adversity (internal or external). The Coke-and-Pepsi competition we observe between corporations is just a show. Corporate executives are more inclined to work together to squeeze more money out of the working and middle classes than they are to compete against each other in any meaningful way.
This may not be formal collusion, and it’s definitely not a “conspiracy”. It’s how upper classes work in most societies, especially in societies like ours, that let them get away with murder (in the case of war profiteers and private prisons, literally speaking). They don’t need to conspire because no one requires them to even hide their malevolence.
At any rate, if there’s an addiction the United States needs to kick, it’s the addiction to its upper class. We handed them a bunch of money in the 1980s because they promised the wealth would “trickle down”. It didn’t. We give them a bunch more money by paying corporate executives orders of magnitude more than any sane logic would dictate, believing we’d see excellent people in the top jobs. It didn’t happen; we got a generation of crooks and slimeballs who crashed the economy several times and damn near broke it in 2008. We gave the rich yet more money in the form of the Bush tax cuts and unconditional bank bailouts. That only produced a massive deficit. Instead of implementing public-option healthcare, an improvement that would shred the pockets of health insurers, we passed patchwork “reform” that will allow them to continue to exist. With virtually every decision we make as a society, we give more money and resources to the upper class, who give absolutely nothing back in return.
This is the wrong way to go. We’ve fed the parasite far too long, and the time to stop is now.