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Jewish World Review Jan. 30, 2001 / 7 Shevat, 5761

John Steele Gordon

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Consumer Reports


Why America's
CEO is poorly paid

http://www.jewishworldreview.com -- WHEN George W. Bush took the oath of office, he became chief executive officer of the largest organization in the Western world. The U.S. government has about 4.7 million civilian and military employees, and a gross income in fiscal 2000 of $2.025 trillion. In contrast, General Motors, the country's largest corporate employer, has only 386,000 people on its payroll and revenues in 2000 of $183.3 billion.

But while the CEO of General Motors receives more than $2 million in base salary, President Bush will get a lousy $390,000. And that pittance is a step up from previous presidents: Bill Clinton was paid only $200,000. Further, if you compare the presidential salary to the salaries, bonuses and stock options routinely given to the CEOs of Fortune 500 companies, presidential compensation is insignificant.

To be sure, the perks aren't bad. The White House is more than adequate government housing (especially in high-priced Washington). And I imagine that those of us who have paced the corridors of airports, far from home and waiting for a plane, could very easily get used to Air Force One. But the perks enjoyed by corporate CEOs aren't shabby either.

Has it always been this way? Well, no. In 1789, Congress voted to pay George Washington $25,000 a year. Before the Industrial Revolution, most people worked on farms or in family-owned businesses and didn't receive a regular salary. There were only a handful of corporations. In all likelihood, Washington's paycheck was the largest in the U.S., and $25,000 was a huge income by the standards of the day.

The country grew explosively after Washington's presidency, and, especially with the Civil War, so did the federal government. But the president's salary stayed the same for the next 84 years. In fact, since the signing of the Constitution, there have been only five presidential salary increases--one every 50 years on average. In 1873, President Grant signed a bill into law--the day before his second inauguration--that doubled the president's salary to $50,000. In 1909, some 36 years later the salary was raised again to $75,000. After two severe war-induced inflations President Truman, on Jan. 19, 1949--the day before his second term began--signed a bill raising his salary to $100,000. In 1969, three days before President Nixon's inauguration, Congress voted to double the presidential salary to $200,000, the last raise for 32 years.

In nominal terms, the presidential salary is now 16 times what it was in Washington's day. But if you factor in inflation, Mr. Bush is paid only about 60% more than Washington was paid, and Mr. Clinton received considerably less in real terms than did Washington. Indeed, no president in history was paid so little as Mr. Clinton, whose salary had been badly eroded by the great inflation of the 1970s and early 1980s. In constant dollars, he received at the end of the 20th century about one-fifth of what Theodore Roosevelt, benefiting from the long deflation of the late 19th century, received at the beginning.

Why should the man holding the most powerful and responsible job in the world be paid less than the senior vice president for development at National Widget? The reason is simple. Corporations must compete for top-flight executive talent. The politicians in Congress, who determine the president's salary, must get re-elected.

Congress has long struggled with this problem. The 1873 act raising Grant's salary to $50,000 (and the salaries of congressmen to anywhere from $5,000 to $7,000) was immediately dubbed the Salary Grab Act by newspapers. Congress hastened to repeal it 10 months later. (Grant got to keep his raise, as the Constitution forbids changing a president's salary during his term of office.) Since that time, the president has received a raise only when inflation had made one long overdue.

But there's another reason, even more important than inflation, that presidential salaries have lagged. Presidents are not compensated like the rest of us. Rather, far beyond most politicians, they are paid in the coin of history.

To be president is to be, ex officio, immortal. William Maxwell Evarts was perhaps the most distinguished lawyer in 19th-century America (he successfully defended Andrew Johnson at his impeachment trial). He also served as U.S. attorney general, secretary of state, and a senator from New York. Yet who, except historians, has heard of him? But everyone knows the name of William Henry Harrison, who was president for a month, most of which he spent dying of pneumonia.

That's why, despite the lousy pay and long hours, there has never been a shortage of qualified applicants for the job of president of the United States. And in the land of the free market, that's why we don't pay the ones we hire very much.

John Steele Gordon is the author of, most recently, The Great Game: The Emergence of Wall Street As a World Power, 1653-2000. His "The Business of America," a collection of his columns in American Heritage magazine, will be published in May by Walker & Co. Comment by clicking here.

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© 2001, John Steele Gordon