Comparative CEO Salaries

From Yochai Benkler’s The Penguin and the Leviathan a story about CEO compensation in the US and Japan:

The assumptions about human motivation also played out in how the companies approached executive compensation (to the benefit of American executives). At GM, the same mind-set that assumed that the lazy workers would slack off if not properly monitored and that greedy suppliers would only offer their best wares for the best price under aggressive competitive bidding processes also assumed that executives would only do right by the company if their incentives were aligned with those of the shareholders. At Toyota, as well as the other Japanese manufacturers, such as Honda or Nissan, on the other hand, it was assumed that executives, like cooperative workers and suppliers, would be motivated by intrinsic rewards as well as material ones, so there was less need for, or justification of, ridiculously inflated wages (and indeed, given what we now know about the dynamics of fairness, we’d expect wage gaps to be lower in firms driven by cooperation). At GM, CEO pay on any given year could be as much as two hundred times what an assembly-line worker would have taken home; at Toyota, it was about a tenth of that. In 2006, for example, then CEO Wagoner made more than the top twenty-one executives at Honda combined, and somewhere in the order of fifteen times the salary of his equivalent at Toyota. The difference was not, shall we say, performance based.

This analysis seems a bit too quick, though. It’s not as if you had two car companies, GM and Toyota, that happened to have different philosophies. You have two whole countries, the US and Japan, with this huge systematic gap in CEO compensation levels. Non-Anglophone Europe is somewhere between US and Japanese executive compensation practices, and the other Anglophone countries are like the United States. The labor market in executive talent is oddly segmented. Firms frequently cut costs by shifting low-skill labor to Asia, but never seem to cut costs by taking advantage of low-wage Asian executive talent.