Book Review – Les Rémunerations Obscènes

Philippe Steiner‘s Les Rémunerations Obscènes is a pamphlet more than a book per se. With a 134 pages of text, it a short and clear read on the topic of the stratospheric compensations received by corporate CEOs and their lack of justification. However, the book is not just a rant against these compensations packages. Steiner systematically debunks one by one, armed with both economic and organizational sociology and some solid references to research, all the justifications commonly employed to rationalize the levels of CEO compensation.

The book is also shock full of data detailing the various levels of compensations, their evolution and trajectories, alongside some more well-known data on the increase of inequalities and wage stagnation for the rest of the population. The icing on the cake comes from some morceaux choisis from CEOs themselves, in their own words, explaining why they should be paid such obscene compensations. Finally, the book ends with a few suggestions as to what should be done.

The sociologists will also find in the book some constant references to classical (Weber, Durkheim) and more contemporary sociologists as Steiner goes through some SHiP (Structure / History / Power) demonstration to explain how we got to these levels of compensation, why the upward trend has been so steep and continues to this day irrespective of objective factors such as performance. Steiner has done his homework and the bibliographical references are quite extensive for such a short book.

Using Weber, Steiner argues that the obscene levels of compensation have nothing to do with capitalism, which is supposed to temper the irrational passion for profit-seeking through a variety of mechanisms. The unleashing of greed is not part of such mechanisms. The corporate übermenschen (as Steiner calls them, “surhommes”) have managed to disconnect themselves from social ties that would link them to social norms and a general sense of the way the mere mortals live. The strong ties to the political world also increase the amount control that these men (yes, men) exercise over their own enrichment. And has been recently exposed, it is Goldman Sachs world. The rest of us just live in it.

The strongest parts of the book are those where Steiner explains the organizational processes at work in determining CEO compensations, especially the work of compensation committees. These committees may be composed of other CEOs, and they may use information provided by consulting firms specialized in constructing remuneration packages. This is where social capital and social networks analysis is central. These compensation committees look like a game of revolving door and mutual back-scratching disguised under rationalizations such as preventing CEOs from leaving the country if they do not get a globally-competitive level of compensation, the ability to attract the best and brightest. In reality, this looks more like CEOs looking at each other’s compensation and saying “I want at least what they have!” The processes are those of a very close and tight-knit in-group.

What of the argument that compensations packages are often tied to performance (in terms of stock value) and therefore, there is a level of accountability? Steiner reviews the research and shows that that is simply not the case. First of all, there are all the anecdotes of golden parachutes. Second of all, compensations never decrease based on bad performance. They might not increase but that is it. Steiner shows that salaries and bonuses rise in ways unconnected to stock prices and values.

So, are CEOs so rare and so incredibly talented that their compensation levels have exploded? Steiner invokes his Micromégas regime of competition, with reference to Voltaire: minuscule differences between individuals translate into massive differences in compensation between CEOs and the rest. At the same time, CEO contribution to the value of firms is minimal. At the same time, throughout organizations and recruiting firms, there is the belief in extreme individual agency, that is, the belief that whatever firm results are fully attributable to CEO decisions. This belief is taken as religious dogma (except, of course, when the company collapse and all of a sudden, someone like Enron’s Jeffrey Skilling argues that he didn’t know anything that was going on in the firm). If “I” did all this, then, “I” deserve to appropriate such a high share of profits, not the hundreds, or thousands, or tens of thousands of people who have contributed to innovation, productivity, etc. And this appropriation has to be at a level comparable to that of other CEOs, worldwide.

On the other side of things, firms that design compensation packages tend to think that (1) they will not be able to attract the “right” candidates if compensation packages are not tempting enough, and (2) that a company would symbolically debase itself if it did not come up with a phenomenal compensation package (one that is more impressive than that of comparable firms). This triggers compensation inflation as chain reaction.  Companies offer enormous compensation packages as status signals that reflect on them.

Steiner also analyzes the current indignation regarding executive compensation using Durkheim’s concept of moral economy, that is, the social evaluation of the functions and compensation. The level of contestation has to do with the legitimation crisis that has been intensified by the economic crisis, itself revealing the disconnect between compensation levels and the collapse of their justifications. Of course, politicians have grabbed the theme of a moralization of executive compensation, but the tangled web of political/corporate connections guarantees that said moralization will not go beyond rhetoric.

Invoking The Spirit Level, Steiner ends by noting that obscene compensation is a social pollution, contributing to rising inequalities and their deleterious effects. The book is a bit short on solution (fiscal policy), which is a shame but changing the structural nature of obscene compensation probably would take a whole book in itself.

In light of the current crisis and the imposition of “sacrifices” on populations across the Western world, this topic is highly relevant. In the context of the upcoming French presidential election, and as the main candidates start to unveil their platforms, this book comes out at the right time and should be mandatory reading to said candidates.

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