How do free market advocates justify giving CEOs such high compensation? Says Anderson, "There's this feeling that there's a very small number of people on the planet who can do a competent job running a big company, and that you can't attract top talent unless you offer them these huge sums." That belief, in her opinion, is misplaced. "It's a myth: Look at other countries. CEOs in Japan and Europe make a small fraction of what CEOs in the U.S. get. The argument just doesn't hold water."
Why, then, does the practice continue? Because, she says, the members of a corporate board's compensation committee (the entity that determines what the CEO will be paid) are themselves usually CEOs of other companies. "Nobody wants to rock the boat," she says. A compensation committee member's attitude might well be, "If I question this guy's compensation, somebody might question mine."
Anderson applauds the example of Whole Foods CEO John Mackey, who has limited his salary to no more than 25 times that of the average Whole Foods employee. "He believes that a narrower gap between CEO pay and average worker pay is good for business, because it's good for morale and encourages team spirit." It's too bad, in her opinion, that more chief executives don't share Mackey's view.
A further contributor to "excess," says the report, is the U.S. tax code: While corporations can deduct only the first million dollars of a CEO's straight salary, says Anderson, there's no such limit on the deductibility of performance-based incentive pay, including bonuses and options. So, where that component of compensation is concerned, "The more they pay the CEO, the less they pay in taxes."