(Friday’s Populist Capitalist Blog Post)

Who creates the real value in American companies? Is it the average worker? The at-risk capital of the shareholders? Or is it the CEO?

CEOs seem to think that it is they, themselves, and few others. Since most CEOs effectively control their boards (by serving as chair, by having a virtual lock on who is elected to be on the board, and by pretty much determining how richly the board is compensated), too many CEOs are feasting on profits that more rightly belong to their
shareholders. One of the obligations of power is not to use it to tilt the playing field in your favor, but to use your power for the common good and not to rig the game.

In 1965, CEOs made about 24 times the wage of the average worker. By 1978, the ratio had grown to 35 times and by 1989, 71 times. In other words, in a mere quarter of a century, CEO pay had tripled relative to that of the average worker. By 2005, CEO pay would almost quadruple AGAIN to 242 times that of the average worker.* (By other reports, the pay ratio is well over 350 and has peaked as high as 525.**)

Such greed and arrogance boggles the mind and constitutes a blatant breach of CEOs’ fiduciary duty to their shareholders, the rightful owners of the profits. Stewardship is a concept that seems to have fallen out of favor. Truly great men have within them a sense of humility that grounds them and bonds them to their fellow man.

Albert Einstein is proof that one can be great and still have humility: In 1933 Einstein took a position at Princeton University’s Institute for Advanced Study. Einstein was asked to set his own salary. He replied with what he thought, in view of his needs and his fame, was a reasonable number. Princeton rejected Einstein’s salary request as too low. Evidently it was unthinkable to pay other scholars a salary that would exceed that of a man of Einstein’s reputation and renown and at the same time the university felt it would not be able to attract eminent academicians and researchers at a number below the salary requested by Einstein.

Princeton ended up paying Einstein a salary more than 3 times his request. The inflation-adjusted equivalent would be about $150,000 today, still an incredibly modest sum by CEO standards.

Closing Quotes:

“I know of no great men except those who have rendered great service to the human race.” — Voltaire, 1694-1778

“If we cultivate the habit of doing service deliberately, our desire for service will steadily grow stronger, and it will make not only for our own happiness, but that of the world at large.” — Mahatma Gandhi, 1869-1948

“Generosity is giving more than you can, and pride is taking less than you need.” — Kahlil Gibran, 1883-1931

*The State of Working America 2008-2009
**Jeanne Sahadi,, August 29, 2007