Executive Pay

Fun with Jack and Suzy

Celebrated CEO superstar Jack Welch is having a blast in retirement. He seems to have a new mission in life: defending over-the-top corporate executive compensation.

By Sam Pizzigati

Behind every great fortune, the great French novelist Honoré de Balzac once pronounced, sits a crime. If you can’t see that crime, the work of Pulitzer Prize-winning American journalist David Cay Johnston suggests, you’re not looking hard enough.

Johnston has been looking for years as the lead reporter on the New York Times tax beat. In articles and books, Johnston has helped us understand how our wealthiest build fortunes by brazenly evading taxes.

Johnston left the Times recently and now writes a regular column for Tax Notes, the nation’s top trade journal for tax professionals. His most recent investigative target: General Electric. Seems that G.E. officials in Brazil spent years conniving their way out of tens of millions of dollars — maybe much more — in taxes.

Mega YachtsThe entire episode, says Johnston, offers “a rare and candid look at how, behind closed doors, G.E. executives, managers, and lawyers dealt with evidence of systematic tax cheating that flourished over many years.”

Over most of the last quarter-century, the biggest beneficiary of anything that has flourished at G.E. has been Jack Welch, the General Electric CEO who retired in 2001 with a fortune variously estimated at between $456 million and $800 million.

Welch is keeping busy in retirement. He’s writing an internationally syndicated newspaper column with his current life’s partner, former editor of the Harvard Business Review Suzy Wetlaufer.

The column carries a just-folks title, Winning with Jack and Suzy, and regularly mixes business advice for would-be moguls with snappy expositions on Welch’s political and economic philosophy. The latest installment, for instance, features a full-throated, unapologetic defense of contemporary corporate executive pay.

“Yes,” Jack and Suzy acknowledge, “most CEOs make a ton of money, and sometimes they make too much. But in the market economy, salaries are set by supply and demand.”

And that’s good, Jack and Suzy quickly assure us. After all, we wouldn’t want government setting executive pay. We’d just end up with politicians trying “to outdo one another with promises of putting CEOs in the poorhouse.”

What about shareholders setting executive pay? Well, we shouldn’t want shareholders setting pay either.

“How can thousands of people,” Jack and Suzy ask us, “formulate a company’s pay levels?”

But if we let corporate boards determine the bossman’s pay, aren’t we asking for cronyism and corruption? Not to worry. The free market, Jack and Suzy confidently believe, will protect us. The price a company’s shares of stock command in that free market reflect and reward real performance, not back-scratching.

In other words, the market rocks! Executives who make lots of money make that money because the market has determined they deserve it.

This neat logic begs a question or two. In 2000, if we follow the Jack and Suzy logic train, the market apparently decreed that Jack Welsh himself merited $144.5 million for his labors at G.E. This $144.5 million, Welch’s total pay in 2000, equaled about 3,500 times the income of that year’s typical American family.

Interestingly, back in 1975, the market made a very different determination on the value of Jack Welch’s predecessor as General Electric CEO, the legendary Reginald Jones.

Jones had a spectacularly profitable run in G.E.’s top slot. U.S. News & World Report would even call him the most influential business executive in the entire United States. But Jones only took home $500,000 in 1975, just 36 times the income of that year’s typical American family.

Why did the “market” so change its mind about the value of General Electric’s top executive? Why did the market decide that Jack Welch was 100 times more valuable than his incredibly successful predecessor? Could the “market” have somehow made a mistake somewhere in all this?

Or did the relatively modest paycheck that went to Reginald Jones in 1975 reflect the political and economic power dynamics, the checks and balances, of a society substantially different from our own? Could CEOs, if that’s the case, actually owe their rewards more to their power than their “performance”?

Maybe Jack and Suzy can take these questions up in their next column.

Sam Pizzigati edits Too Much, the online weekly on excess and inequality published by the Washington, D.C.-based Institute for Policy Studies.

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