5 Lessons of Japan's Rock-Bottom CEO Salaries

Their pay checks are a fraction of their American counterparts'

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Japanese regulators recently announced that Japanese companies must disclose the salaries of executives who make more than 100 million yen, which is equivalent to 1.1 million dollars. Surprisingly, only 300 executives at Japan's nearly 4,000 companies met the baseline requirement. And those who did weren't far over the limit. At Toyota, for example, the chairman draws $1.5 million and the CEO does not even make the $1.1 million required for public disclosure. That's tiny in comparison with the salaries of top U.S. executives. In 2009, the CEOs of Hewlett-Packard, Best Buy, and FedEx made $51.9 million, $49.3 million, and $44.5 million respectively. Why are Japanese executives paid so little, and American executives so much? What are the lessons of this?

  • Could Stifle Japan's Global Competition BusinessWeek's Jason Clenfield warns, "A drawback of Japan's low pay is that it's harder to recruit abroad because junior executives overseas can end up with higher salaries than their peers--or bosses--at headquarters. ... The bottom line: Japan's CEOs earn far less than Americans or Europeans. The pay gap could be a problem as Japanese companies expand abroad."
  • Sometimes Culture Dictates Business The Washington Post's Ezra Klein sighs, "It's a reminder that CEOs aren't just paid what the market will bear, they're paid what the culture will accept."
  • Actually, Salaries Aren't So Different The Atlantic's Megan McArdle explains that tax law means it's easier for Japanese executives to pad their expensive accounts, which is just an alternate form of payment. "In general, you can assume that companies will compensate their executives in whichever manner is a) most tax favored and b) makes the headline number as small as possible--not just to avoid the beady eye of the regulators, but also to grease things past the shareholders. The American tax code is not very good at collecting money from corporations, but it is very good at getting companies to change expenditures into more tax-advantaged forms, which is why the once legendary American expense accounts became, by the nineties, rather meager by international standards."
  • U.S. Companies Should Outsource CEO Labor Liberal blogger Matthew Yglesias gets tongue-in-cheek. "I assume that if this was an article about how some Chinese factory workers do essentially the same job as some American factory workers, but they do it for much less money, the bottom line would be about all the efficiencies that can be reaped through outsourcing production to Asia. And to me the bottom line seems to be the same. Toyota is a much larger and dare I say more successful firm than Ford, whose CEO appears to be making over $20 million a year. Surely there's some senior person over there who speaks English and would be willing to do Alan Mulally's job for Carlos Ghosn money, right? CEO pay in China also seems to be quite low."
  • Blame the Boards of Directors Commenter Bloix at Ezra Klein's blog suggests, "Here we have supine boards of directors voting for whatever the CEO wants in exchange for corporate welfare for the board members. That doesn't happen in Japan because corporations are owned in large part by banks, which exercise real control, and not by shareholders, who don't. So this isn't about culture. It's about the structure of corporate ownership and the failure of the American model to provide adequate corporate governance."
This article is from the archive of our partner The Wire.