AMERICA'S MOST SKILLED inflation fighter may have finally met his match --
CEOs of high-tech companies, who receive billion-dollar stock-option
compensation packages even though their companies post no profits.
For more than a decade, Federal Reserve Chairman Alan Greenspan has
guided our economy through both the political and theoretical currents that
have threatened unprecedented economic expansion. This has included attacks
on the inflationary impact of government-ordered 5 percent per annum
increases of the minimum wage and his surprising silence on the often
triple-digit increases in executive-compensation packages.
While providing the theoretical anti-inflation underpinnings to
Republican-led opposition to a nickel an hour per month increase in the
minimum wage, the Federal Reserve has refused to examine the potential
inflationary effect of billion-dollar New Economy stock compensation
packages for CEOs -- usually not tied to company profits or real
For example, despite government studies on the alleged inflationary
effect of modest wage increases for 20 million minimum-wage workers, the
has refused to commission any studies on the potential inflationary impact
of excessive compensation packages of CEOs.
On April 2, a New York Times-commissioned study of 60 New Economy CEOs
demonstrated the continued indifference of the Federal Reserve toward the
``trickle down'' inflationary impact of excessive executive compensation
These 60 chief executives alone appear to have received in excess of five
more in increases over the past three years than 20 million minimum- and
near-minimum wage workers received in total during the same time period.
(These CEOs received average increases of $1.2 billion.)
The inflationary effect of these pay pack
ages may be far greater than increasing the federal minimum wage by 50
percent, to almost $8 an hour from $5.15 an hour.
The $75 billion secured by these 60 CEOs may be just the tip of the
pay iceberg. Most of the Fortune 1000 and New Economy chief executives are
taking similar pay increases at an even greater cost to the U.S. economy.
And it is a rare CEO who (in order to protect the legitimacy of his triple
digit compensation increase) does not provide similarly large increases for
most, if not all, of top management.
These escalating executive increases can have a destabilizing effect on
the distribution and availability of necessary goods. Recent examples are:
the million-dollar, three-bedroom Silicon Valley homes that even a
$100,000-a-year Stanford University professor cannot afford; the refusal of
many qualified teachers and police officers to seek work in areas lacking
affordable housing, and; the growing number of Silicon Valley homeless who
have full-time jobs.
Compounding this social destabilization caused by excessive and unevenly
distributed compensation, is the inefficient cost-
cutting many CEOs engage in to justify their compensation increases, such as
layoffs or terminating health benefits.
These inflationary costs, which in aggregate may exceed $500 billion, may
be mild relative to what might occur if labor union
leaders replicated this behavior. Imagine the inflationary impact should the
ordinary worker, including police officers, teachers, secretaries and
skilled tradesmen, seek triple, or even double digit wage increases.
And it defies human nature to believe that cost-cutting and large-scale
layoffs -- allegedly necessary for global competitiveness -- can be
effective once 95 percent of the workers recognize that they alone, not
their leaders, must pay the price.
Most likely, Federal Reserve Chairman Greenspan, whose political acumen
is often as extraordinary as his wisdom and luck, will not be found wanting
and will make available the evidence demonstrating the link between
excessive compensation and future inflation.
Perhaps such evidence, combined with freezes on executive compensation, will
reduce the need for future Federal Reserve interest rate increases that help
fuel inflationary homeownership costs and limit small business expansion.
John C. Gamboa is a member of the Federal Reserve Consumer Advisory Board and executive director of The Greenlining Institute. Mary Ann Mitchell chairs the National Black Business Council Inc.
©2000 San Francisco Chronicle