Entries for February 01, 2007

— President Bush touched on the issue of CEO pay during his economic speech in New York yesterday. Instead of seeking to limit pay through legislation–as congressional Democrats are proposing–Bush went the bully pulpit route and scolded corporate boards for ignoring their responsibilities. "You need to pay attention to the executive compensation packages that you approve," Bush said. "You need to show the world that American businesses are a model of transparency and good corporate governance." But CEO pay hasn't exploded just because of buddy-buddy corporate boards. To a great extent, the sixfold increase in CEO pay between 1980 and 2003 can, according to the research of MIT economist Xavier Gabaix, "be fully attributed to the sixfold increase in market capitalization of large U.S. companies during that period." And the bigger the firms, the more CEOs are paid, which is one reason American CEOs are paid more than their foreign counterparts. There are just a lot more big, successful companies here. And as for the gap between executive pay and worker pay, a lot of the disparity stems from the fact that workers' incomes are dependent on wages while CEOs benefit from the stock market. As I noted in a recent story on income inequality and globalization: