January 1, 2007
If headlines about high executive pay make your face turn red, you might want to avoid the news for the next few weeks. This is the time of year that the big Wall Street firms award their year-end bonuses, and they will almost certainly be huge.
Of course, the headlines will say they are an all time record, which is both true and misleading at the same time. With inflation and economic growth, almost anything in the economy that is measured in total dollars – from budget deficits to free agent salaries in sports – has a better than even chance of managing that feat.
But the bonuses being paid on Wall Street this year are in fact so large that even those of us who forecast the economy have had to pay attention. Since those payouts are recorded as personal income in the aggregate economic accounting that we track, we’ve had to bump up our forecasts for income in the first quarter of 2007 – for the entire economy -- just to account for the wheelbarrows of cash that will be hauled in by the folks in the financial world in the beginning of next year.
As far as forecasting goes, that’s all there is to it. We’ll go back to tracking and analyzing the factors that will affect economic growth. But as human beings, stories of financial success and sky-high pay for a fortunate few have always triggered passion and emotion that can find its way into economic policy. Those can affect our economic futures as well, both as individuals and for the economy as a whole.
It’s hard to speak dispassionately about people who earn more in a month than the average American makes in a lifetime. We seem to accept the fact that some people can sing, act, or hit a baseball better than we can, but when it comes to inequality in income it is another matter. That is particularly so when coupled with the populist image of heartless executives in the financial world, far removed from the thousands of honest workers whose lives their decisions affect.
Our economic system gives us plenty of ways to make decisions and career choices that can ultimately affect our own pay, yet most of us have nothing to say about what others make. If the Boston Red Sox owners want to pay $51 million just to have the right to negotiate with a prospective pitcher, that’s their decision.
The biggest exception to this, of course, is in the public sector. We routinely castigate legislators who vote themselves higher pay, to the point where the salaries of judges, mayors and legislators who manage multi-billion dollar enterprises can earn less than an executive secretary at a Fortune 500 company is paid
That’s a problem, ultimately. But it is a different kind of problem angst over high pay is causing, flourishing most notably in the collective bargaining environment, that has captured my attention of late.
Just about any manufacturer, and particularly those operating in Indiana, faces extraordinary competitive pressure these days. That being said, it would appear from public rhetoric that companies and their unionized workforce too often can’t even seem to agree what the problem is. While managers see a world where costs are escalating and their power to raise prices has vanished, their workers always seem to return to one simple issue – executive pay.
The fact that top executives have six or seven figure salaries, they maintain, puts all that is said about tough times to the lie. Companies that can afford high pay, it is said, can also afford to operate plants that are marginal financial propositions.
It’s easy to address this contention with facts and figures, but ultimately the issue is about emotion, not data. And the longer those emotions hold sway in making decisions about the future, the darker that future gets.
About the Author
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