The UAW is demanding higher wages from
executives. How do American pay packets get so big – and can strikers close the
gap between CEO-worker compensation?
At 23:59 on 14 September,
roughly 13,000 workers at three of the largest automakers in the US went on
strike. After eight weeks of unsuccessful negotiations between the United Auto
Workers union (UAW) and the companies – General Motors (GM), Ford, and
Stellantis – workers walked off the job when contracts expired. Thousands more workers have since joined the strike in
38 locations across 20 states, and President Biden is expected to show support
by walking the picket line this week.
At the top of the
UAW's demands is a 40% pay increase across four years (that
number was lowered to 36% a few days after the strike began, after ongoing
negotiations). Union president Shawn Fain has made the canyon-like gap between
CEO and worker pay the foremost banner of the strike.
"We're fed up
with falling behind," Fain
said in an interview with CBS's Face the Nation. He said the
distance between CEO and auto worker reflects the ever-widening economic
inequality in the US. "This is what's wrong with our economy, and this is
what's wrong with America right now," he told host Margaret Brennan.
"The billionaire class keeps taking more and more, and the working class
keeps getting left behind."
The strike has put the
enormous pay of American CEOs in the spotlight. Mary Barra, the CEO of GM,
made $29m (£23.4m) in 2022 – 362 times the
median GM worker pay. The same year, Stellantis's CEO Carlos Tavares made $24.8m (£20m), or 365 times the
average worker pay; and Ford's CEO Jim Farley made $21m (£17m), or 281 times the median
worker pay.
CEO pay in the US has grown 1,322% since 1978, according to the Economic Policy Institute. Such astronomical CEO pay is a very American problem. Not only do American CEOs far out-earn their workforces, they also out-earn their peers in other countries.
For instance, Japan – home to companies including Toyota,
Nissan, Mitsubishi and Honda – has long been a top exporter of automobiles.
Yet Japanese automaker CEOs are paid far less than their US
peers.
Akio Toyoda, the former
CEO of Toyota (the country's largest employer), was paid ¥999m ($6.7m) in 2022. Honda CEO
Toshihiro Mibe was paid ¥348m ($2.3m) in 2022, and Nissan CEO
Makoto Uchida made ¥673m ($4.5m).
This shows up in Europe, too.
In the UK, Aston Martin CEO Amedeo Felisa brought in £756k ($925k) for his eight months on
the job, after he took over as executive in May 2022. And in Germany, Oliver
Zipse, the CEO of BMW, earned €5.3 ($5.6m) in 2022. Ola Källenius,
CEO of Mercedes-Benz Group, earned €7.1m ($7.5m) the same year. Oliver
Blume, who is chairman of the board of management of Porsche, made €7.4m ($7.9m). Blume is both head of
Porsche and, as of 1 September of last year, head of parent company Volkswagen
Group as well.
There are several reasons why
American executives across many industries take home far more – and US patterns
are showing up in other countries. Can striking workers change this?
A
different pay structure
American auto CEOs make a lot –
as do top brass across many industries in the US. Globally, the base salary of corporate chief executives is somewhat
comparable. Yet the size of variable compensation is wildly
different – and it's one of the reasons US CEOs make so much more than many
executives abroad.
In Japan, for instance, pay is
more or less evenly split among salary, short-term incentives, and long-term
incentives. And even though CEOs in the UK, Germany, and France out-earn their
Japanese counterparts – sometimes by more than 100% – their compensation is
similarly apportioned, with base salary making up about a quarter of pay,
according to a 2023 analysis by consulting firm Willis Towers Watson (WTW),
seen by BBC Worklife.
Comparatively,
however, salary plays a small role in US CEO compensation. For instance, in
2022, Stellantis CEO Tavares's salary – or fixed pay – constituted just 9% of his $24.9m award for the
year.
The bulk of US CEO pay – sometimes 90% or more – is tied to performance. For executives across industries, simply, as their company makes more money, their earnings increase
So, instead of a high salary, pay packets for executives in the
US generally include much larger short-term and long-term incentives – like
bonuses and stock options – according to WTW. Indeed, for Tavares, the
remainder of his compensation – or variable pay – was awarded in fringe
benefits, stocks, and a post-retirement pension. His total earnings in each
category vary every year, and his total remuneration is contingent on how
profitable the company is for its shareholders.
The bulk of US CEO pay –
sometimes 90% or more – is tied to performance.
For executives across industries, simply, as their company makes more money,
their earnings increase. Performance-based pay is meant to incentivize CEOs to
make a business as productive as possible, maximizing value for
shareholders.
However, not everyone thinks
talent at the top is what actually drives profitability; among others, The
Economic Policy Institute is critical of this theory, arguing that luck is a stronger determinant of business success than
the CEO's acumen. Further, employees seldom reap the benefits at
the same rate their executives do.
The
view from abroad
There are also cultural factors
that amount to ultra-high pay, says Joseph Foudy, a professor at the Stern
School of Business at New York University, who studies corporate governance and
the auto industry.
For instance, the US is
generally very pro-market, he says and enjoys the idea of upward mobility. And
large shares of publicly traded companies are owned by several shareholders,
rather than individual entities, so CEOs are less beholden to a single powerful
unit that can move to replace them.
Additionally,
in the US, there are no legal mechanisms to control CEO pay. Although there are
some exceptions, most countries don't have laws to cap executive pay, either.
Yet abroad, compensation remains comparatively limited.
Foudy cites Japan, where the company's own executives have seats
on the boards that control remuneration. There is nothing keeping these
executives from raising their own pay, but they generally don't.
He says this is largely because "the primary constraint [on
CEO pay] in most other countries is not legal. It's a norm. It's the sense that
there'd be a blowback from shareholders, from banks, from government regulators
that do business".
Stellantis CEO Tavares experienced this kind of cultural
blowback when he was up for a pay raise in 2022. French investors made such a
clamour that the proposed compensation was rejected in a non-binding vote. As
one investor put it: "Is this extremely high
remuneration socially justified when the group will probably have to face
massive restructuring with job cuts because of production overcapacity and a
doubling up after the merger?" In 2023, however, shareholders at the
annual general meeting ultimately voted to approve Tavares's
remuneration.
However, some countries have been slowly moving towards a model
of CEO compensation that resembles the way many executives are paid in America.
This is the case in Japan, where the CEO compensation structure has
been shifting since 2015 when changes to the corporate governance code
encouraged businesses to adopt performance-based compensation structures.
According to WTW analysis, 2015 marked an acceleration in executive
compensation.
"Japan is observing hot discussion on how to achieve
sustained, structural pay increase for employees," says Sumio Morita of
WTW, including extending long-term incentives to senior managers below the
executive level.
In other words, they're moving towards the model in which their
base salary is a smaller percentage of compensation, and the bulk of their
earning potential is pegged to profit. As of 2022, executive compensation has
more than doubled over its 2009 average. Per WTW's analysis, CEO pay in Japan
increased by 35.5% in the last year.
A
global effect
As executive pay continues to grow around the globe, UAW
strikers are looking to close this gap between CEO and worker pay in the US
auto industry. A strong and active union, like the UAW, may be key to achieving
that.
"In general, the financialisation of economies since the
1980s and the decreasing strength of trade unions is a big part of why CEO to
worker pay ratios increased so much globally between 1980s and 2000s,"
says Andrew Speke of the High Pay Centre,
a UK think tank that researches corporate governance. "Countries where
there is stronger regulation of businesses and corporate governance in
particular, and where there is higher trade union density tend to have lower
pay ratios."
Speke
believes the outcome of this strike could have global implications. "The
US is still the most influential country in the world, particularly among
liberal-democratic, developed economies. What succeeds in the US can act both
as a model and as inspiration to labour movements elsewhere in the world,"
he says. "Perhaps from a macro perspective, it can represent a shift in
relations between labour and capital more generally."
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