Good Leverage Needed to Win the Pay Game

Are you better off today than you were yesterday? The Bureau of Labor Statistics has wage figures spanning the decades since 1964 that say no. We’ve seen a lot of change since then. Economically, we had wage and price controls in the early 1970s and supply-side economics in the early 1980s. Inflation ballooned to frightening proportions and now appears to have subsided. Yet, after all that, the BLS study--using 1977 as a base and adjusting for inflation throughout--reports that the average employee of a non-agricultural business earned $171.96 a week in December, 1985, compared to $174.34 in January, 1964.

That’s right, when all the changes are added and subtracted, the result equals no gain.

Of course, some employees are more equal than others. The bosses have stayed ahead of inflation, as you probably suspected. Forbes magazine, in its latest compilation of 793 chief executive pay and benefit packages, says that CEO pay rose 10.3% last year when inflation was only 2.3%. But they didn’t stay as far ahead, over the years, as you may have suspected.


The consulting firm of Towers, Perrin, Forster & Crosby estimates that median pay in 1985 for the chief executive of a large corporation was $795,000. Ten years ago, according to the same firm--which consults on compensation matters for 6,500 companies--the median pay for the top dog was $420,000. That looks astounding until you allow for the inflation of the intervening decade. Then, the boss is only slightly ahead--so far as salary and bonus are concerned.

There are other compensations at the top. Executives can make a bundle from stock options, and lately they have sought protection in case the company is sold from under them--the so-called golden parachutes, which are a way of saying, “Every man for himself, first-come, first-served in the lifeboats,” to the rest of the company’s employees. With all that, the top people still make 50 times the pay of the average Joe or Jill.

What Traffic Will Bear

Why are top people in U.S. business paid so much more? The executives have leverage. They negotiate their pay just as surely as any ballplayer. And anytime you can negotiate an individual deal for yourself, you’re ahead of the game.

Look on the bright side. Once you realize that executives make what the traffic will bear, you can forget all those studies that compare pay to stock market performance, or earnings results, or whatever. The exceptions to such studies are always more interesting than the conclusions.

Look, for example, at the actors in this week’s takeover. Michael Blumenthal of Burroughs made a quarter of a million dollars more than Gerald Probst of Sperry last year, even though Burroughs had slightly lower sales and less operating profit than Sperry. Why? Because Blumenthal--brought in by directors in 1981 to get the company moving--had the leverage to negotiate better terms than Probst, who was promoted from within Sperry. Nice guys finish . . .

On the darker side, there is the question of whether all this executive care and feeding does business any good. There’s not much evidence that it does; even the consultants have their doubts.

“We pay all this attention to pay-for-performance at the top,” says Walton Winder, a vice president of Towers, Perrin, “but we give only lip service to rewarding performance through the rest of the organization.”

It’s not a matter of money. It’s a matter of commitment. Motorola Chairman Robert Galvin’s compensation ranks 13th out of 16 chief executives in the telecommunications industry. Yet Motorola has a reputation for incentive pay down to the lowest-paid employees.

On the other hand, we have the hapless example of Bethlehem Steel, where the retiring chief executive this year asked directors for a pay raise and a golden parachute while turning around to ask the rank and file to take a pay cut. Pay for performance, indeed.