Have Our Corporate Chiefs Become Expendable?

Do our corporate CEOs deserve all those millions they annually pocket? Can a modern economy somehow survive without the “incentive” these mega millions provide? Do we, in effect, need our top corporate bosses pocketing more in a day than their workers can take home in a year?

We’ve been asking — as a society — questions like these ever since CEO paychecks started soaring in the late 1970s. Back in the 1960s, America’s CEOs averaged about 20 times what their workers were taking home. Today’s CEOs, analysts at the Economic Policy Institute detailed last October, routinely pocket 400 times and more what their workers are making.

In 2022, adds a recently released AFL-CIO Executive Paywatch report, CEOs at S&P 500 companies averaged $16.7 million in total compensation, their second-highest pay level ever, at the same time U.S. worker real hourly wages were falling for the second year in a row.

Jumbo executive take-homes, as an Inequality.org guide to academic research on CEO pay helps us see, continue to breed organizational dysfunction. “Pay for performance” jackpots essentially give top execs a never-ending incentive to pump up profits by any means necessary. Instead of making investments that can help workforces become more productive, execs are simply doing whatever they can to inflate their share prices — and enrich themselves in the process.

Between 1947 and 1999, nonfinancial U.S. companies shelled out an average 19.6 percent of their operating cashflow to shareholders, notes economist Andrew Smithers. The second half of that half-century saw stock options become an ever more dominant source of corporate CEO compensation. The 21st-century result? Between 2000 and 2017, the Smithers research finds, the average corporate cashflow to shareholders more than doubled to 40.7 percent.

Other analyses focus on the psychological consequences of huge pay gaps between workers and top execs. At corporations with these wide gaps, S&P 500 analyst Scott Chan’s research suggests, “the big boss regards employees as tools, not as valued team members.” Wide pay gaps create work environments, Chan adds, where employees “don’t feel valued and so don’t do their best.”

“We think in particular,” as the chief of Norway’s $1.3 trillion sovereign wealth investment fund told Bloomberg TV earlier this year, that “in the US the corporate greed has just gone too far.”

But that executive greed — despite the spotlight on it — seems as entrenched as ever. And that reality has some analysts going beyond attacking how much our corporate chiefs execs make. These critics are increasingly wondering whether we need these chiefs at all.

This “bossless narrative,” the University of Manchester Business School’s Matthew McCaffrey writes in a forthcoming issue of the Journal of Entrepreneurship and Public Policy, has actually been around for generations and, in the 19th century, helped nurture the cooperative movement. This narrative has become “especially popular over the last thirty years,” with a “growing literature seeking to understand the unique strengths and weaknesses of bossless organization.”

“Bosslessness” can come in a variety of shapes and sizes. At the more modest end, enterprises can move in a bossless direction by eliminating management levels and “delayering” their operations. More ambitious “flattening” efforts, McCaffrey relates, can replace “traditional managerial authority” with “self- organizing teams” that “choose their own projects” and decide — democratically — the tasks their firm will pursue.

Flatter companies, McCaffery believes, “can and do succeed in the right circumstances,” and he sees his own new scholarly work as an exploratory attempt to identify those circumstances that can “encourage experimentation with bossless models.” These circumstances, he notes, can vary. In stagnating industries, for instance, “reducing management hierarchy may be the only viable strategy” for firms with “increasingly slim” profit margins.

Moves that governments make, McCaffery points out, can also “make bossless firms more feasible than they would be under conditions of no intervention.” The world’s most famous cooperative network, Spain’s Mondragon, rests on a credit union operation that made funds available to emerging new co-ops. Spanish law allowed this Mondragon credit union to pay “slightly higher interest” rates than banks, a policy that encouraged savers to use it.

Another example comes from the Netherlands where the Dutch company Buurtzorg Nederland revolves around “teams of self-organizing nurses to provide home health care across the country.” This 17-year-old company has taken advantage of “the bureaucratization and inefficiency of many Dutch health care companies” that McCaffery, a fellow at the libertarian Mises Institute, chalks up to the Dutch government’s regulation of the health care industry.

McCaffery, as this example illustrates, comes at the study of organizational “flatness” from a distinctly non-left, “free market” perspective. But his interest in “low- or no-hierarchy organizations” bodes well for attempts to create alternatives to corporations that essentially exist to “manufacture” mega-rich CEOs.

The emerging “debate about the bossless company,” McCaffery concludes, reflects a growing public skepticism “about the value of managers and hierarchies as such.” This skepticism, he adds, “involves questioning essential principles of economics and management that can justly be said to underpin much of what goes on in the global economy.”

Analyzing — and changing — that “what goes on” may well bring together some strange political bedfellows.

Sam Pizzigati co-edits Inequality.org. His books include The Case for a Maximum Wage and The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class, 1900-1970.