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US Executive Pay: Scaling New Heights

Posted to the IUF website 02-Sep-2008

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The latest survey of US CEO Compensation documents the ever-widening gap between executive pay packages and the earnings of the average US worker. Compensation last year for the chiefs of the 500 companies in the Standard & Poor's 500 averaged USD 10.5 million, or 344 times the average workers' pay. Three decades ago, the multiple ranged from 30-40. Since then, US wages have stagnated or fallen, while executive compensation continues to balloon.

Compensation for private equity and hedge fund managers claims a special prize in the inequality sweepstakes. In contrast to their less fortunate counterparts in the S&P 500, the top 50 hedge fund and private equity managers averaged annual pay packets of USD 588 million each - more than 19,000 times the average workers wage.

The figures come from Executive Excess 2008, the annual CEO compensation survey published by the Institute for Policy Studies and United for a Fair Economy. In addition to documenting the ongoing inflation of corporate pay, the report, which is available online here, describes the mechanisms through which ordinary Americans subsidize this corporate looting through the companies' systematic exploitation of loopholes in the federal tax system. Enormous shortfalls in public revenue are thus the inevitable counterpart of this obscene accumulation of wealth.

Private equity chiefs in particular exploit the well-known tax subsidy to the buyout industry (not unique to the US) through which income from "carried interest" (the share f profits after fees and other charges which accrues to the fund managers) is taxed as capital gains rather than income (normally taxed at a higher rate). The report cites the example of Henry Kravis of buyout fund KKR, who in 2006 earned USD 450 million but was spared as much as USD 96 million in taxes on the money due to the preferential treatment of carried interest. Faced with legislative proposals to abolish or reduce this absurd regulatory subsidy, US private equity funds have spent millions on lobbying in what was described by the Washington Post as the "heftiest six-month payment to any lobbyist" on record.