Why do CEOs of Japanese car makers earn less than their American counterparts, even though they’ve outperformed the U.S. for decades?

From Yochai Benkler’s The Penguin and the Leviathan a story about CEO compensation in the US and Japan (quoted by Matt Yglesias):

At GM, CEO pay on any given year could be as much as two hundred times what an assembly-line worker would have taken home; at Toyota, it was about a tenth of that. In 2006, for example, then CEO Wagoner made more than the top twenty-one executives at Honda combined, and somewhere in the order of fifteen times the salary of his equivalent at Toyota. The difference was not, shall we say, performance based.

Benkler attributes the compensation disparity, in part, to differences between the U.S. and Japan societies assume about what motivates people:

The assumptions about human motivation also played out in how the companies approached executive compensation (to the benefit of American executives). At GM, the same mind-set that assumed that the lazy workers would slack off if not properly monitored and that greedy suppliers would only offer their best wares for the best price under aggressive competitive bidding processes also assumed that executives would only do right by the company if their incentives were aligned with those of the shareholders. At Toyota, as well as the other Japanese manufacturers, such as Honda or Nissan, on the other hand, it was assumed that executives, like cooperative workers and suppliers, would be motivated by intrinsic rewards as well as material ones, so there was less need for, or justification of, ridiculously inflated wages (and indeed, given what we now know about the dynamics of fairness, we’d expect wage gaps to be lower in firms driven by cooperation).

After pointing out that other countries pay their CEOs more as we do, Matt Yglesias observes:

The labor market in executive talent is oddly segmented. Firms frequently cut costs by shifting low-skill labor to Asia, but never seem to cut costs by taking advantage of low-wage Asian executive talent.

Funny, that last bit.

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About Guy N. Texas

Guy N. Texas is the pen name of a lawyer living in Dallas, who is now a liberal. He was once conservative, but this word has so morphed in meaning that he can no longer call himself that in good conscience. Guy has no political aspirations. He speaks only for himself.
This entry was posted in Culture, Economics, Income inequality, News, Politics. Bookmark the permalink.

One Response to Why do CEOs of Japanese car makers earn less than their American counterparts, even though they’ve outperformed the U.S. for decades?

  1. Pingback: Cute Pink Bunny Teaches Japan about the U.S. Economy | Skeptikai

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