Enemies of Reform — Krugman

Old Blog Import

You see, corporate leaders were desperate to keep their stock prices rising, in an environment where anything short of 20 percent profit growth was considered failure. And why were they desperate? In a word: options. The bull market, combined with ever-more-generous options packages, led to an explosion of executive compensation. In 1980 chief executives at large companies, according to Business Week’s estimates, earned 45 times as much as non-supervisory workers. By 1995, however, the ratio had risen to 160; by 1997, it had reached 305. C.E.O.’s wanted to keep the good times rolling, and they did: by 2000, though profits hadn’t really increased, they were paid 458 times as much as ordinary workers.

The point here isn’t that top executives are overpaid, though they surely are; it’s that the way they are paid rewards them for creating the illusion of success, never mind the reality.”

(NY Times)