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Commentary | JOHN BALZAR

A First-Class CEO's Worth? Whatever the Market Will Bear

Big taxes on big paychecks could help to rein in executive greed.

September 18, 2002|JOHN BALZAR

Limit compensation and perks for CEOs? Let's be careful here. We don't want to find ourselves down the road with a weakened business system, one that is further than ever from our root values.

"Terribly bad social policy and perhaps even bad morals." That's what the president of the Federal Reserve Bank of New York said about hyperinflated executive compensation. William J. McDonough, reportedly a contender to replace Fed Chairman Alan Greenspan, went on to quote the Bible's admonition, "Love thy neighbor as thyself." In other words, there's no excuse for the average CEO to pull down 475 times more money than the rank and file. He called on corporate executives to get their greed under control.

OK. If some CEOs and boards of directors throttle back with bonuses and stock options, swell. And if institutional shareholders, those with swag at corporate annual meetings, are successful in bringing the interests of investors more in line with payouts to CEOs, great. If Congress can muster the guts to make stock options and perks, like company-paid $6,000 shower curtains, appear on earnings reports, it's about time.

But hang on, dear readers: To "love thy neighbor as thyself" means CEOs too.

What am I driving at? This: Payback is sweet right up to the point when it becomes ugly. Taken too far, and U.S. politics is no stranger to that impulse, we all wind up worse off.

McDonough's exhortation is being one-upped by those who want to go further and, lynch mob-like, impose limits on executive compensation. Time to pause and catch our breath.

For one thing, such a proposition doesn't have a prayer of succeeding. In a market economy, the one thing we know beyond doubt is that the supply of creative loopholes always grows to meet demand.

But there's a better reason to keep our cool when our blood runs hot. A generation ago, I watched as an anti-government mood took hold in the nation, not unlike the anti-business attitudes developing now. The Vietnam War, the credibility gap, welfare giveaways--everyone found a reason to doubt government and those who served in it.

Yes, excesses and aberrations in government were brought under rein. But deeper down, the nation suffered. Today, the best among us no longer consider public service a noble calling. The result: Look at the pipsqueaks in our city halls, state legislatures, in Congress and elsewhere. The idea that government is us, not them, faded. Voter participation correspondingly declined. Cynicism replaced civic engagement as we contemplated the future of the country. No reason now to repeat the mistake with business. We don't want to drive good people away from corporate America. Today's headlines prove that we dearly need the converse.

So, yes, our newfound intolerance for corporate lawbreakers is overdue. Our frustration with the cozy cronyism of boardrooms, Wall Street and political campaigns is solidly founded. The affronts of executives who cast workers to the wolves for the sake of building luxury worlds for themselves should not be tolerated.

We can also lament that Washington's response to the corporate scandals has been to make business law even more complicated, instead of more straightforward.

But taking the next step and trying to limit how much someone is paid or what perks they receive is not American and not in the best interest of Americans.

Who is to say that the men and women who manage our industries are not as valuable as the rookie NFL player signed for $10 million? Or the actor who pockets $20 million per picture plus a cut of the gross?

Fact is, runaway greed has infected our culture, not just our corporations. It has cast a pall on athletes and entertainers the same as CEOs. Worst of all, it has undermined the ideal under which our nation has prospered for most of its history: that hard work brings just rewards.

What to do? Simple, profound: A progressive tax code dampens greed. It affects CEOs the same as baseball players, lottery winners, Hollywood stars and those who live off trust funds. Each additional increment of earnings is taxed at a higher rate, progressively reducing the incentive to focus single-mindedly on money.

Today, the top income tax bracket is 38.6%, on its way down to 35%. We need only look back a few decades to see the merits of the opposite approach. From 1950 to 1963, the income tax rate exceeded 90% for every dollar earned over $400,000.

It wasn't a perfect era, but Elvis Presley didn't stop singing. He lived quite flamboyantly. Mickey Mantle didn't stop swinging; baseball was in fact a better game. General Motors set a record for corporate profits. Volume on the New York Stock Exchange finally rebounded from the Depression. Philanthropy reached new heights, the social safety net was enlarged and wages grew. University researchers under Jonas Salk discovered a vaccine to prevent polio.

There was still plenty of incentive, lots of enterprise, leaps forward in innovation. And less argument about when enough was too much.

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