Rich-baiting time - exorbitant salaries of American CEOs - Column

National Review, May 6, 1996 by William F. Buckley, Jr.

Nothing galls more, when people are having hard luck, than to view extravagant advantages being enjoyed by others. It is a theme Pat Buchanan has milked in his envy-courting campaign, and now 60 Minutes with Lesley Stahl.

Her special target was poor Robert Allen, head of AT&T. I say "poor" Robert Allen not because he is poor (he made the equivalent of $20 million last year) but because he was pathetically ill-equipped to face Lesley Stahl's camera and her gritty questioning, as she caught him in some hallway, going from somewhere to somewhere. I pause to recommend that any CEO who traffics with 60 Minutes in extemporaneous circumstances should be fined $1 million. Anyway, the conversation was as you'd have guessed. . . .

Stahl: "I'm wondering if you would respond to the charges that it isn't fair that you've gotten a big pay increase, a big pay package for millions and millions of dollars, when you're laying off thousands and thousands of people."

What on earth could Mr. Allen answer? He could say, 1) The reason I got a big raise is that I figured out how to carry the current load of business with forty thousand fewer employees. Or 2) The benefits of that efficiency flow to AT&T, sure, but also to the public: for exactly the same service in 1996, the average family will be paying $11 less. Or 3) I'm being paid a hell of a lot of money, but obviously it isn't money that otherwise might have been spent to keep forty thousand people employed. If I gave up my salary and paid over every penny of it to the forty thousand workers discharged that would end them with $500 each, not much more than a week's pay. And 4) At $20 million I am being paid 1/3,450th of the gross. If Colonel Sanders pocketed one fried chicken for every 3,450 he sold, that might be thought reasonable, no, Lesley?

Miss Stahl had on as her stalking horse an accountant who specializes in executive salaries, and the program finished with a nice philosophical fillip.

Accountant: "You know, it's funny. The company will sit there and they'll say, very soberly, that 'we're sorry' . . . But, you know, it's the doctrine of comparative advantage; you go where the labor costs are cheapest."

Well, said the accountant, he had done a relative test on earnings and he found that U.S. CEOs were earning 3.2 times more than their British counterparts. "Why don't we bring all the Brits over to run American companies because we can get them for a third the price and they speak better English than we do?"

Great fun and games, but all of this doesn't have much to do with the real world. 1) For the most part, talent is fungible. If you are a good manufacturer in America, you will be a good one in Germany. Recently, Volkswagen hired away the production chief of General Motors, Jose Ignacio Lopez de Arriortua, at a salary we can only guess at. 2) American companies are free to hire whomever they wish to act as CEO -- who is stopping them? 3) At almost every level, America does things on a grander scale than other countries. To warrant such a salary as Mr. Allen gets, you begin in England by starting a phone company that grosses $79 billion per year in revenue.

The demagogic economics of Lesley Stahl and her accountant having been analyzed, this much remains to be said, namely that some CEOs are doing the best they can to give American capitalism a bad name. The first point to make is that shareholders will have a difficult time believing that the board of directors is other than a pawn of management when big raises are given even when the company's performance is lousy. AT&T made a profit last year of $139 million, which is peanuts. At 5 per cent of gross, it would have come in at over $3 billion. Obviously there were write-offs of one kind or another, but the shareholder would be interested to know whether the president being rewarded was the same president who got the company into the bad deal.

But even that apart, there is a point at which one stares at the salary and asks oneself -- should ask oneself -- Is this thing looking ugly? What do we have here, voluptuary greed? Bill Gates can have any salary he wants, since he practically owns his company and it is richer than King Solomon's mines. He takes twenty million. The super-rich CEOs should pause just for a minute and ask whether there isn't a sensibility they'd just as soon not scorn. Yes, it is silly to bring up, as though they had a bearing on one another, increased executive salaries and diminished work forces. But that paralogism doesn't authorize scornful inattention to the implications of preposterous salaries.