USA: Executive pay over the top.

USA: Executive pay over the top. - In Search of Excess: The Overcompensation of American Executives.

Last Updated: 31 Aug 2010

In Search of Excess: The Overcompensation of American Executives.

By Graef S Crystal.

Norton; 265pp; £13.95.

Review by Francis Kinsman.

Travelling with President Bush on his emetic Japanese trip this January were a number of top-ranking US businessmen. They included Lee Iacocca of Chrysler, the company that last year lost $1 billion. Iacocca is paid more than $4.6 million a year. On average, each member of this 21-strong delegation of industrialists earned (if that's the word) six times more in gross than his Japanese counterpart - who also had to fork out for a higher tax bill.

The Americans have a balance-of-payments problem. Yet one can hardly blame the Japanese for showing a politely disdainful attitude toward their guests. As Koichi Hori, a director of the Tokyo branch of Boston Consulting Group, expressed it. "There's no logic whatsoever for an executive to be paid 100 times more than a secretary." There are two economic truths here which are inextricably mixed, and may ultimately result in a savage protectionist war between the economic power blocs.

But Hori was even too generous in his criticism. Now, with perfect timing, Graef S Crystal's book pinpoints the fact that the average CEO of a major Japanese company earns $310,000 a year, or 16 times as much as the average industrial worker. Compare this with the $2.8 million of direct comparison (including annual bonus and the annualised equivalent of such goodies as stock options, restricted stock, performance shares and performance units) of the parallel Mr Big in the US - which Crystal equates as a staggering 160 times the pay of the average US worker.

In Search of Excess will either turn you black with rage or green with envy. Crystal is a poacher-turned-gamekeeper. He used to be a "compensation consultant" (or top salary fixer), but having seen the light he now focuses it balefully on senior US executives in the remuneration department. Crystal is on record (in Fortune magazine) as saying that there's a fine line between a compensation consultant and a prostitute - and as then having regretted the remark "because prostitution is a service that has stood the test of time". If enough institutional (and individual) shareholders really get stuck into the implications of this book, the good years could just be drawing to a close for the fat cats. The author blows out of the water the linked argument that (a) if your company has performed brilliantly, but that (b) if your company has performed vilely, you have to keep the good people by not making them suffer too much. Tell that to the Japanese. They have a more cost-effective way of dealing with failure - sideways promotion.

The book is loaded with detailed and persuasive statistics about the excesses of top US business. It adds the necessary vinegar to the oil of a system which lubricates the corporate syllogism that if things are good, the boss is very much richer, while if things are disastrous the boss is only a teeny-weeny bit richer. Although somewhat repetitive and prone to self-indulgent American jokeyness, Crystal pounds home the message in highly credible style.

His short incursion into the world of UK business is alarming. The vieillesse doree of our establishment is not too far behind the US. This bodes extremely ill for our national outlook, if top people are paying themselves too much - and failing to bring home the biscuits.

According to a recent issue of Pay And Benefits Bulletin, published by Eclipse/IRS, British chief executives' net-of-tax pay rises in the period 1984-89 averaged almost 100% compared to inflation of only 28%. The rises awarded to senior heads of function, and to middle management, were markedly more restrained. Top perks, too, are soaring over here, partly due to North American contagion as Crystal explains. Tate and Lyle's shareholders were recently asked to ante up 70% of £1 million for the house of its new ex-Alcan MD, Stephen Brown, plus three years' salary for loss of office. Incidentally, Crystal estimates the differential separating the chief executive and the average worker in a large British company at 33 times. High Street banks that are owed £1.5 billion by Maxwell Communication Corporation were recently miffed to learn that Peter Laister, who took over as executive chairman from Kevin Maxwell, had his salary raised to some £250,000 - from what was thought to have been less than £50,000 as a non-executive director. They complained that he had sat on the sidelines while the business had cost so many people so much money. We wait with fascination to see what happens to the remuneration of the top management of those same banks, when their terrible 1991 results come out.

Shareholders of the world unite, you have nothing to lose but your naivete. Crystal offers a strong dose of realism and a lot of ammunition.

Francis Kinsman is a consultant and writer.

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