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Why Does Executive Greed Prevail in The United States and Canada but not in Japan?: The Pattern of Low CEO Pay and High Worker Welfare in Japanese Corporation

2014; Oxford University Press; Volume: 1; Issue: -1 Linguagem: Inglês

10.5131/ajcl.2014.0008

2326-9197

Alberto Salazar, John Raggiunti,

Corporate Governance and Law

According to a list of the 200 most highly paid chief executives at the largest U.S. public companies, in 2012 Oracleâ–™s Lawrence J. Ellison was the best-paid CEO, earning $96.2 million as total annual compensation. He has received $1.8 billion over the 1993â–“2012 time period. The lowest-paid on the same list is General Motorsâ–™ D.F. Akerson, who earned $11.1 million. The average national pay for a non-supervisory U.S. worker was $51,200 in 2012, meaning that the average of the top CEOs made 354 times more than the average non-supervisory worker in 2012. Hunter Harrison, Canadian Pacific Railway Ltd., was the best-paid CEO in Canada for 2012 and received CDN $49.2 million in total annual compensation, significantly higher than Canadaâ–™s best-paid CEO in 2011, Magnaâ–™s F. Stronach, who received CDN $40.9 million. In 2011, the average Canadian annual salary was CDN $45,488 and Canadaâ–™s top fifty CEOs earned 235 times more than the average Canadian worker. These executive pay practices contrast with the growing inequality in Canada, recently illustrated with the finding that 40% of Indigenous children live in poverty. In contrast, Japanâ–™s highest-paid CEO is Nissan Motor Co.â–™s Carlos Ghosn, who earned 988 million yen ($10.1 million) in the year ending March 2013, barely changed from the previous year and only modestly improved from his US $9.5 million compensation in 2009. That does not even put him among the top 200 most highly paid U.S. company chiefs and the top twenty best-paid CEOs in Canada for 2012. Why are Japanese CEOs paid considerably less than their American or Canadian counterparts? This Article argues that the activism of long-term-oriented institutional investors such as banks and the tying of executive pay to worker welfare in the context of a culture of intolerance towards excessive executive compensation explain to a great extent the development of a pattern of low executive pay in Japan, despite the recent weakening of bank monitoring as a result of the adoption of a U.S. style of governance in some Japanese companies. The Japanese experience also demonstrates that lower executive compensation does not compromise firm performance and is a necessary condition to building a stakeholder-friendly corporation. For example, the CEO of Toyota (the worldâ–™s biggest automaker), Akio Toyoda, earned 184 million yen ($1.9 million) in 2012, a 35% increase from the previous year. He is the lowest-paid chief of the worldâ–™s five biggest automakers, and led Toyota to generate the highest return in 2012 among the top five global automakers. Toyotaâ–™s outlook for increasing profit prompted the automaker to approve the biggest bonus for workers in recent years. By contrast, Alan Mulally, Ford Motor Co.â–™s chief and the best paid among the top five, took home $21 million in 2012.