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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 Corporations

2016; Oxford University Press; Volume: 64; Issue: 3 Linguagem: Inglês

10.1093/ajcl/avw007

2326-9197

Alberto Salazar, John Raggiunti,

Corporate Law and Human Rights

According to a list of the 200 most highly paid chief executives at the largest U.S. public companies, in 2012 Oracle’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 1993–2012 time period. The lowest-paid on the same list is General Motors’ 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 Canada’s best-paid CEO in 2011, Magna’s F. Stronach, who received CDN $40.9 million. In 2011, the average Canadian annual salary was CDN $45,488 and Canada’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, Japan’s highest-paid CEO is Nissan Motor Co.’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 world’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 world’s five biggest automakers, and led Toyota to generate the highest return in 2012 among the top five global automakers. Toyota’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.’s chief and the best paid among the top five, took home $21 million in 2012.