By the end of 2006, operating earnings of Standard & Poor's 500
companies will have risen at double-digit percentage rates for eighteen
straight quarters. The financial industry will have made $29.1 billion
after taxes, a 43% increase over last year’s record profits,
according to Bloomberg’s calculations.
The top performing company, Goldman Sachs, will reward each of its
corporate employees with $620,000, for a company total of $16.5 billion.
Chief executive officer Lloyd Blankfein is to receive an annual salary
of $53.4 million. That is $13.4 million more than John Mack of Morgan
Stanley, the previous record holder, will collect for 2006. According
to Forbes Magazine, the average CEO pay in 2005 amounted to $10.9 million
plus $5.6 million from exercising options. For the CEOs of the top
500, aggregate stock gains accounted for 51% of total compensation.
Those executives earn their multimillion dollar incomes for their hard
work, so the apologists for the corporate reward system argue. In reality,
however, this year’s corporate grew mainly due to booming financial
markets, profitable mergers, and low volatility. Tight controls over
spending also helped earnings balloon. Since labor is the largest expense
for most businesses, keeping wages and benefits constant contributed
to business profits. Shareholders in U.S. corporations can do little
to curb exorbitant executive remuneration, because it is the corporate
boards that determine the amounts.
Rank-and-file workers have been gaining little from the labor productivity
they contributed to their employers’ profits. Their wages have
been badly lagging behind inflation for much of the past ten years.
Many workers had their pension plans terminated and their healthcare
benefits reduced. The persistent threat of outsourcing to Asian countries
discourages workers from making pay demands. Some companies have been
using their cash hoards to buy record amounts of their own shares on
the open market--to push their stocks up, rather than expand their
operations and hire more employees.
Perhaps unwisely, too many American corporations have been contributing
to the widening income disparities so that now they may face what they
least like to see: Congressional inquiries and potentially more government
regulation. Once lawmakers investigate the hundreds of excessive executive
rewards, they are likely to inquire into other major complaints against
corporate business, such as tax avoidance, backdating of stock options,
neglect of health, safety, and environmental standards, liability loopholes,
tax breaks for the oil industry, and contract fraud in Iraq.
The battle lines for the debate over more regulation of business are
fairly transparent. While the Bush administration wants to ease controls
over corporate record keeping and auditing to reduce costs, its critics
want stricter financial oversight to curb corporate crime. While the
administration has filled supervisory federal agencies with former
lobbyists for business, the critics demand stronger protections for
whistleblowers.
The Bush White House has been enjoying cozy relations with the dominant
corporations in finance, energy, drugs, retail sales, insurance, and
the media. The critics would like to contain the expansion of the business
giants whose near-monopolistic market domination leaves no more even
playing field for others and thus further restricts free enterprise.
The outgoing Congress discontinued the Superfund tax on the producers
of toxic chemicals and allowed dozens of coal-fired power plants to
escape stricter pollution controls. The critics want business to assume
full financial liability for its toxic waste and receive incentives
for pollution-preventing technologies.
Shareholders are increasingly clamoring for more timely and detailed
disclosure of corporate developments that negatively impact upon their
financial interests. They should also have the right to nominate and
recall board members.
The past performance of America’s corporations has shown that
they are creative enough to solve their problems, not the least the
problems they presently face. If, however, they fail to make the adjustments
demanded by the public, government is likely to impose more regulations
upon them.
Free enterprise can thrive only if all players have fair and equal
access to it.