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
Carleton University, Department of Law
September 5, 2013
Fordham Journal of Corporate and Financial Law, Vol. XIX, 2014
According to a list of the 200 most highly-paid chief executives at the largest U.S. public companies in 2013, Oracle’s Lawrence J. Ellison remained the best paid CEO and earned $96.2 million as total annual compensation last year. He has received $1.8 billion over the past 20 years. 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 US worker was $51,200 last year and a CEO made 354 times more than an average worker in 2012. Hunter Harrison, Canadian Pacific Railway Ltd., was the best paid CEO in Canada for 2012 and received $49.2-million as total annual compensation, significantly higher than the 2011 best paid CEO, Magna’s F. Stronach who received $40.9 million. In 2011, the average annual salary was $45,488 and Canada’s top 50 CEOs earned 235 times more than the average Canadian. 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 (US$10.1 million) in the year ended March 2013, little changed from the previous year and modestly improved from his US$ 9.5 million compensation for 2009. That does not even put him among the top 200 most highly-paid U.S. company chiefs and the top 20 best paid CEOs in Canada for 2012. Why are Japanese CEOs paid considerably less than their American or Canadian counterparts? This essay 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 to excessive executive compensation explain to a great extent the development of a pattern of low executive pay in Japan. The Japanese experience also demonstrates that lower executive compensation does not result in compromising firm performance and is a necessary condition to build a stakeholder-friendly corporation. For example, the CEO of Toyota (world’s biggest automaker), Akio Toyoda, earned 184 million yen ($1.9 million) in 2012, a 35 percent 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 last year among the top five global automakers. Toyota’s outlook for increasing profit prompted the automaker to approve the biggest bonus for workers in the last years. Alan Mulally, Ford Motor’s chief and the best paid among the top five, took home $21 million in 2012.
Number of Pages in PDF File: 33
Keywords: Executive Compensation in Japan, United States, Canada, CEO pay, institutional investors, Japanese banks, workers' interest, tying CEO pay to employee wages, corporate governance
JEL Classification: G3Accepted Paper Series
Date posted: September 8, 2013 ; Last revised: January 11, 2014
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