Long-Term Trends in CEO and Worker Pay: Average hourly worker to CEO pay ratios - Source: AFL-CIO: Business Week and United for a Fair Economy

Steven Rattner an American venture capitalist, writes in the current issue of BusinessWeek magazine: Hooray for The New York Times and The Wall Street Journal for returning the problems of class in America to the front page. Shame on the rest of us, passive witnesses to the emergence of a second Gilded Age, another Roaring Twenties, in which the fruits of economic success have gone not to the broad populace but to a slim sliver at the top.

For this handful, life is a sweet mélange of megafortunes, grand houses, and massive yachts. Meanwhile, the bottom 80% endures economic stagnation, including real wages that haven't risen in 14 months, according to the Bureau of Labor Statistics.

Source AFL-CIO - Emmanuel Saez, University of California, Berkeley, Department of Economics

Meanwhile at one of Ireland's leading daily newspapers The Irish Times, staff are objecting to the high levels of pay of the senior executives, who are about to cull the lower paid ranks for cost savings. The newspaper's columnist Fintan O'Toole says that there is a double-standard of seeking more job cuts while paying vast salaries.

In relation to the US, Rattner says that Economists Thomas Piketty and Emmanuel Saez calculated (using data from the Internal Revenue Service, hardly a hotbed of partisanship) that the share of income going to the top 1% of households nearly doubled, to 14.7% in 2002, up from a low of 7.7% in the early 1970s. By comparison, the income share for the top 1% peaked at 19.6% in 1928 before beginning its long slide. What is particularly alarming is that at every step up the ladder, the disparity has progressively widened. Over the past 30 years, the share of income garnered by the top 10% of Americans has grown by about a third; the share of the top 0.01% -- the 13,000 or so households with an average income of $10.8 million in 2002 -- has multiplied nearly four times.

Rattner writes that if America  doesn't pursue policies to fix inequality, social pressures may force unwise, even extremist moves, like protectionism. Income inequality is now wider in America than anywhere else in the industrialized world and on a par with that of a Third World country. Is this the American Dream, he asks?

In Europe the disparities between the haves and have nots is not as wide as in the US but the trend is to find reason to adopt it.

The Global Pay Gap
Nobody beats the U.S. when it comes to the difference in pay between CEOs and the average worker. In 2000, on average, CEOs at 365 of the largest publicly traded U.S. companies earned $13.1 million, or 531 times what the typical hourly employee took home. The corresponding ratio in 1980 was only 42, and in 1990 it was 85.  As one source has put it, "in 2000 a CEO earned more in one workday (there are 260 in a year) than what the average worker earned in 52 weeks. In 1965, by contrast, it took a CEO two weeks to earn a worker's annual pay". US CEOs' pay rose 313 percent from 1990 to 2003, an advocacy group UFE said. By contrast, the Standard & Poor's 500 stock index rose 242 percent and corporate profits gained 128 percent. Around the rest of the world, Latin America is the leader in pay disparity, though even it doesn't come close to the U.S. At the other end of the spectrum, Japan has the smallest gap between CEO and average-worker pay. The calculations below are based on on estimates by the consulting firm Towers Perrin as of Apr. 1, 2000. Average employees were assumed to be working in industrial companies with about $500 million in annual sales.
Country		CEO compensation as a multiple of average employee compensation
Brazil		57
Venezuela		54
South Africa		51
Argentina		48
Malaysia		47
Mexico		45
Hong Kong		38
Singapore		37
Britain		25
Thailand		23
Australia		22
Netherlands		22
Canada		21
China (Shanghai)		21
Belgium		19
Italy		19
Spain		18
New Zealand		16
France		16
Taiwan		15
Sweden		14
Germany		11
South Korea		11
Switzerland		11
Japan		10

Australia

As executive pay increases, company performance declines, according to the New South Wales Labor Council. No, it's not trade union rhetoric, but the result of a detailed study by three academics of the performance of Australian companies, and their highly paid chief executives. The research was commissioned by the Labor Council.

During the 1990s there were startling increases in the earnings of senior executives, with overall growth of around 400 per cent, about ten times the growth of ordinary worker earnings. This high pay was rationalised on the grounds that it would produce better returns for the shareholders. The subject has become more and more controversial, with particular attention being given to the size of payouts to departing executives.

The researchers say bluntly that the often-stated link between high executive pay and company performance does not exist. "Indeed, the evidence is that as an executive's pay increases, the performance of the company deteriorates."

So the shareholders gained no benefit from excessive remuneration for executives. But there are wider community implications. The report says, "The yawning pay gap between senior executives and ordinary workers makes a mockery of the employer insistence on wage restraint for the lowest paid workers and raises fundamental questions about both the social justice and the organisational worth of the multimillion-dollar payouts being made."

The academics, specialists in business or economics, were Dr John Shields (University of Sydney), Dr Michael O'Donnell (University of Canberra) and Dr John O'Brien (University of New South Wales). Their report reviews the main published studies on executive pay, both in Australia and overseas. One chapter is devoted to examining the economic and business arguments for and against high pay for executives. The authors agree that no organization can ignore external labour markets, but list a number of reasons for questioning the current practice in Australia.

The most compelling arguments against high pay come from an analysis of the actual results in top Australian companies. The authors examined the data from the Australian Financial Review annual survey of executive remuneration, which covers Australia's largest 150 companies. They compared this with three measures of company performance: the return on equity, changes in the share price, and the change in earnings per share.

When company performance was measured against these criteria they say, "statistical analysis shows that high executive pay levels actually coincide with a lower bottom line".

Here's a typical startling statistic, amongst many. Take the 20 worst performing companies in 2000-2001, and compare them with the 20 best, measuring by the return on equity. The executives in the 20 worst performers were paid in salaries 2.5 times the executives in the best. Their shareholdings were 16 times greater than the best performers.

The companies concerned have been paying a lot more recently for their executives. In 1992 executive remuneration for the 50 highest paid CEOs was 22 times average weekly earnings. In 2002 it was 74 times. But the cash remuneration was only part of the story. For the top 100 executives, the value of the share options they held was, on average, $11.9 million, and the shares they held was, on average, $160 million. The authors say, "There is little evidence that the greater accent on share options and other long-term incentives has enhanced shareholder value."

The authors identified the best range for optimal performance. When executive salary was between 17 and 24 times average wages, company performance seemed best. Beyond that, the performance of a company began to deteriorate.

Higher public trust where huge earning disparities are absent

Politicians, managers and journalists all suffer from the same problem: people do not really trust them, according to a survey that was commissioned by The Wall Street Journal Europe. GfK Ad Hoc Research Worldwide surveyed a total of 21,889 people in 21 countries during September and October 2003.. European citizens afford representatives of the church, lawyers and in particular doctors a greater degree of trust. The situation in America is similar to Europe. People from Northern Europe are more positively disposed towards leading figures, whereas those in Central and Eastern Europe tend to be more cynical. Germans are way out in front in terms of being suspicious of political and business leaders in particular.

Politicians, managers and even journalists do not have an easy time of it. Citizens of Europe and the USA do not always regard them in a positive light. In Western Europe, 86 per cent of people responded that they did not have any faith in politicians, while two thirds harbour similar feelings towards top management in companies. People in Denmark and Finland, however, feel very differently. 64 per cent of Danish respondents and 50 per cent of Finnish respondents indicated that they trusted business leaders, which is a far higher percentage than in other countries. Danish people were also more positive regarding politicians than other nationalities, with four in ten people finding politicians at least a little trustworthy. In Nordic countries, where there are not huge disparities between top pay levels and average earnings, trust in business leaders is relatively higher.

Germany: trust is shaken

No other nation is as critical of politicians, business leaders and the media as the Germans: only 18 per cent of respondents trust the managers of large companies and only two per cent have a great deal of trust in them. Over 90 per cent of Germans are at the other end of the scale, with three out of four actively distrusting top management. In a comparison of the various groups, managers come second to last, and politicians are even worse off. Only eight per cent of all Germans trust them and only one per cent trusts political representatives completely. Doctors, followed by the church, and lawyers – which rank far ahead of journalists – are trusted far more.

Stock exchange scandals have led to distrust

Overall, almost fifty per cent of people think that the stock exchange scandals of recent months and years have shaken their trust in the management of listed companies. In Western Europe, and specifically in Germany, 45 per cent of citizens hold this view. Only 15 per cent remain unaffected by the scandals. Once again, Danish people think differently, as do the Portuguese and Eastern Europeans. There is an exceptionally high proportion of people here who claim not to have been influenced by the scandals, exceeding that of people whose trust has been shaken as a result of the stock exchange scandals, which is not the case in the other countries.

Following America’s lead?

One in three Western Europeans trusts the top management in his/her country. One in four respondents assesses the European management style positively, while four in ten Europeans think that European countries are managed as well as their American counterparts. Only 16 per cent take the view that European managers are worse than American managers. At 46 per cent, the number of Germans rating European and American managers equally is slightly higher than in the rest of Europe.
Americans themselves are loyal to their management, with two thirds of the opinion that managers in the USA are more proficient than in Europe. Only a very small number (six per cent) think that European managers are better than in the USA.

Many Europeans would still invest their own money locally

When asked what stocks they would invest EUR 1,000 in, three out of ten Europeans replied that they would invest this money exclusively in European companies. A further 13 per cent would invest the majority in shares in European countries, while just 11 per cent would focus on companies on other continents. In Germany, 38 per cent replied “don’t know”, which is a high percentage and a clear indicator that Germans have not yet completely recovered from the turbulent stock market situation over the past two years.

The survey

The survey “CEO and Stocks” focuses on the trust of citizens in various professional groups in general and their attitudes towards the management of large companies in particular. Commissioned by The Wall Street Journal Europe, GfK Ad Hoc Research Worldwide surveyed a total of 21,889 people in 21 countries during September and October 2003.

Irish Times staff revolt at editor and directors' 'indefensible' salaries

The Sunday Independent today reports on a letter that has been signed by staff of The Irish Times objecting to the high levels of pay of the senior executives who are about to cull the lower paid ranks for cost savings.

The Sunday Independent hasn't provided comparable information on pay levels of executives responsible for the Irish titles in its own organisation.

Managing director Maeve Donovan and editor Geraldine Kennedy receive a basic salary of €323,000. Adding bonuses, executive pension funding of about 20%, motor vehicles, travel allowences, top of the range health and permanent health insurances, Employer's PRSI and Employers Liability insurance, the annual cost of each individual likely exceeds €500,000.

It has been reported in the past that Geraldine Kennedy had insisted when appointed, on the same pay and benefits as Maeve Donovan.

Donovan who is about 50, succeeded Englishman Nicholas Chapman in 2002 who had agreed a secret settlement with the newspaper in early 2002, following a High Court action to prevent his dismissal. Donovan has had virtually no business experience outside the Irish Times having joined the organisation from the then ICC Bank in 1977.

In 2004, the costs of benefits in kind to the senior executives were €115,000 (2003:

Geraldine Kennedy

€97,000) and pension contributions were €780,000 (€2003: €709,000.) There was an additional payment of €564,000 into the executive pension scheme in respect of Mr Séamus McCague who retired in November 2003 under the company's voluntary parting scheme.

Deputy editor Paul O'Neill who received a basic salary of €145,000 in 2004, had been business editor until early 2003 when he participated in the then voluntary redundancy scheme of 5 weeks salary per year of service. He rejoined the newspaper on a full time basis 12 months later.

The 146 years old Irish Times organisation is a medium sized one in business terms and none of the current senior executives could claim to be instrumental in the growth of the business. The newspaper's competitor Independent News and Media has 75 titles.

Maeve Donovan managing director of The Irish Times

Geraldine Kennedy is paid more than the editor of the UK's top non-tabloid newspaper The Daily Telegraph, which has a circulation of about 9 times that of The Irish Times.

Columnist Fintan O'Toole told the Sunday Independent: "We as a paper are not shy of preaching about corporate pay and fat cats but with this there is a sense of excess. Some of the sums mentioned are disturbing. This is not an attack on Ms Kennedy, it is an attack on the executive level of pay. There is double-standard of seeking more job cuts while paying these vast salaries."

Sunday Independent Article:

IRISH TIMES editor Geraldine Kennedy is struggling to quell a major staff rebellion over the perks and lavish salaries she and senior management figures enjoy.

The paper's employees are preparing an extraordinary letter of protest to be sent to the chairman and governors of the Irish Times Trust.

Already signed by more than 50 senior staff, it describes as "extravagant, disproportionate and indefensible" the salary and bonuses paid to the editor and four other directors.

Along with managing director Maeve Donovan, figures show that Geraldine Kennedy now receives a basic salary of €323,000 - almost €15,000 a month after tax - putting her among the best-paid newspaper editors in the world.

The mood within the normally gentle cocoon of D'Olier Street has been further darkened by a management plan to seek between 35 and 40 redundancies among a workforce where some reporters and administrative staff earn less than €35,000 a year.

Some of the paper's most senior writers believe it is now not possible for the paper to criticise the pay and conditions of corporate "fat cats" and government ministers when its own management team is earning up to 12 times the average industrial wage.

The denunciation is a heavy blow to Geraldine Kennedy's editorship and she will be rattled by the unconcealed fury among her staff, who say "morale is on the floor" over the executive windfalls. She and five other directors were paid a total of €2.6m last year - an extraordinary 20.5 per cent cut of the paper's total profits. The rest of the 544 staff shared just four per cent of Irish Times profits among them.

To put it in context, Kennedy is paid almost as much as some UK tabloid editors and more than the editor of the market leader, the Daily Telegraph, in the UK. That title sells almost one million copies a day compared to the modest 115,000 sold by the Irish Times each morning.

The disclosures have prompted much disquiet among staff at the famously self-regarding title where there is concern that it will no longer have a right to speak for the "downtrodden".

Operating as a trust, the paper is a private company but has no single proprietor. It controls its spending and editorial direction through the six members of the Irish Times board and its Trust.

Just a month ago, Geraldine Kennedy and Maeve Donovan warned staff of the need for "rigorous cost management" - saying that it was their responsibility to "ensure that high costs are not allowed to threaten the future of the newspaper".

Staff hope that the letter - which they say is not part of any industrial action but simply an expression of "moral outrage" - will be acted on by Irish Times Trust members including David Begg, who is also general secretary of the Irish Congress of Trade Unions. Two years ago, the Irish Times was forced to shed 250 jobs - almost a third of its workforce - in a brutal round of cost-cutting designed to haul the paper out of a multi-million black hole.

Journalists were then further enraged to discover that the newspaper's former editor Conor Brady had been given a non-compete deal lasting an astonishing 12 years and said to be worth €850,000. Some of the paper's most senior journalists, including columnist Fintan O'Toole, have urged staff to sign the letter which says that the "inflated salaries being paid to those at the top make a mockery of the paper's very identity".

Mr O'Toole told the Sunday Independent: "We as a paper are not shy of preaching about corporate pay and fat cats but with this there is a sense of excess. Some of the sums mentioned are disturbing. This is not an attack on Ms Kennedy, it is an attack on the executive level of pay. There is double-standard of seeking more job cuts while paying these vast salaries."

As anger grows over the pay scales, the paper's journalists have made clear they want any future redundancies or cutbacks funded by cuts to executive perks and salaries in the first instance.

The letter adds: "This raises serious doubts in our minds as to whether those who approved such outrageous salary levels either know or understand what the Irish Times represents and what is itspurpose and meaning.

"While it must make profits to exist, it does not exist to make profits and we feel that the whole thrust and meaning of the enterprise has now been turned upside down and that our work and standing as journalists have been seriously undermined."

Staff have compared Ms Kennedy's and Ms Donovan's terms and conditions with those enjoyed by public figures such as the Taoiseach and Professor Brendan Drumm who has taken over as chief executive of the Health Services Executive.

He will earn a salary of €320,000 and a potential annual bonus of €80,000, but Irish Times staff point out this is in return for presiding over 98,000 employees and an annual turnover about €11bn.

Their letter states: "Contrast that with the Irish Times, which had 544 staff at the end of last year and a turnover of €104.4m. We would ask you how this huge discrepancy can be reconciled, let alone justified."

It also points out that Taoiseach Bertie Ahern gets paid €250,000 for "administering the State", "while the managing director and editor of the Irish Times are jointly responsible for running a relatively modest enterprise.

"We invite you to comment on this glaring discrepancy and offer a credible explanation for it. In our view, it is utterly insupportable - even more so when the newspaper is called upon to report, andto comment on, the pay of politicians."

The letter has already received the backing of senior reporters, with North America editor Conor O'Clery, cartoonist Martyn Turner and columnist John Waters all expressing support.

The six executive directors of the Irish Times were paid more than €2.6.m last year. Geraldine Kennedy and MD Maeve Donovan both earned salaries of €323,000, up from €308,000 in 2003.

The pair and four others also shared €397,000 in performance-related bonuses, which were not broken down, as well as benefits in kind and pension contributions.

In the proposed letter to the Trust, the staff state: "We regard this level of payment to the executive directors as extravagant, disproportionate and indefensible. In particular, we take issue with the enormous sums of money paid to the Editor and MD."

The Irish Times did not return calls seeking comment.

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