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October 18, 2004

Shocker: LA Times Reports on Obscenity of Executive Pay

In a rare, rare, mainstream media look at the insanity of executive pay, the LA Times on Sunday published a scathing article on what they -- not I -- termed "The Rise of The Corporate Plutocrats." Excerpt below the fold -- but read the whole thing. This stuff may not be news to the readers of this blog, but I'm guessing that the majority of the Times' readership was genuinely surprised by the excess permeating even the lower levels of upper management.

Not so long ago, use of a company jet was a rare privilege reserved for top corporate officials—the chief executives, presidents and chairmen whose skyrocketing pay has been well-documented in recent years. (A generation ago, the average chief executive at a big corporation made about 40 times what the average worker did; today it's nearly 400 times as much, says vice dean of faculty Kevin J. Murphy of USC's Marshall School of Business.)

Increasingly, however, those plush leather seats are being occupied by vice presidents, general managers and other second- and third-tier execs. The spreading around of private jet rides is among the more obvious emblems of a profound development in corporate America over the last 20 years: the enormous swelling in pay and privileges for a burgeoning stratum of executives, and their concomitant distancing from the people who work under them. Today, it's not just the boss, but those second, third or fifth in command who pull down seven-figure salaries, own multiple homes and stay in hotels where rooms cost more than most mortgage payments.

Mehdi Eftekari, general manager of the Beverly Hills Four Seasons Hotel, can tell you all about it. He estimates that some 80% of his clientele are corporate officials whose companies pay for their $700- to $3,000-a-night suites. The most modest come with a DVD player, a giant flat-screen TV, a living room with a wet bar and televisions in each of the two bathrooms. Frequent guests can store extra clothes or toiletries at the hotel to lighten their luggage. A staff VIP liaison tracks their personal preferences, so that when they arrive, their rooms are stocked with favorite drinks, snacks and magazines, as well as bathrobes monogrammed with their initials. The hotel even makes sure the bed is equipped with their preferred pillows.

Twenty years ago, you would have been hard-pressed to find a chief financial officer or head of marketing with access to such a lavish expense account. The typical salaries for such corporate sub-chieftains barely cracked six figures.

Those days are history. A survey last year of multibillion-dollar corporations by Pearl Meyer & Partners, an executive compensation consulting firm, found them paying CFOs more than $3 million a year; top legal officers, $2.2 million; and human resources executives—human resources executives!—$1.6 million. And those are just the averages. BusinessWeek recently listed 10 executives with jobs below the rank of CEO who last year pulled upward of $29 million each.

We're not talking about corporate criminals of the Enron or WorldCom type—corrupt executives who pocket outrageous sums by scamming the system or ripping off investors. Nor are these the entrepreneurs whose inspirations and nerve started the company, or the investors who risked their capital to fund it. These people aren't even the top boss, who is under the most pressure, the one with whom the buck stops. They're hired hands—company employees just like the people they oversee. Their salaries are set by legal and transparent means in accordance with prevailing industry standards. It's just that those standards have gone completely off the rails. Never mind the imperial CEO; we have entered the era of the executive plutocracy.

Posted by Trapper John at October 18, 2004 01:46 PM