
                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: SUNDAY, April 21, 1991                   TAG: 9104220275
SECTION: EDITORIAL                    PAGE: B-2   EDITION: METRO 
SOURCE: 
DATELINE:                                 LENGTH: Medium

CAPITALISM?/ PROFITS DROP, SOME CEOS STILL GAIN

ONE OF THE MOST fundamental tenets of capitalism is that merit pays: You're rewarded for performance. Work harder, better and faster than the next person and you're paid more. Same if you can increase production or sales or improve others' output. The prospect of this reward is what makes the system better for more people than, say, socialism.

Yet chief executives of many large U.S. corporations have found a way to make the system work even better - for them. It doesn't matter whether, under their management, the company reached new heights of performance. They get handsome raises even if the chart line drops off the edge.

A recent example is Lee Iacocca, chairman of Chrysler Corp., one of Detroit's struggling automakers. The company's profit dropped 81 percent in 1990; Iacocca's earnings rose 15 percent. He received $3.4 million through various stock plans and $918,182 in salary, including a $218,417 reward for reaching a corporate cost-cutting goal. (One way to get higher pay for yourself is to reduce it for others.)

Prosperity at the top despite hard times is not peculiar to Chrysler. Annual reports are coming out on America's corporations, and The New York Times reports that - in a period of general recession - top executives got pay hikes averaging 8 percent to 15 percent in 1990.

Such raises aren't built on meager bases. Typically, chief executives in American corporations make 70 to 80 times what the average worker does. That's way out of line, for example, with the differential between Japanese managers and employees (and the Japanese have not shown less success as managers). In the United States, the discrepancy between boss and underling pay has more than doubled in the past 15 years.

This, of course, is hardly the only evidence of peculiarities in the distribution of compensation. Entertainers earn vast amounts because Americans value their product more than that of, say, educators. Many professional athletes are paid millions of dollars annually, and not always for stellar performance. Baseball players' average salary has reached $800,000 a year.

Still, it's troubling that many American business executives so routinely win big raises, in contradiction with their companies' bottom line, for job performances that are the equivalent of hitting .220 or worse.

There are exceptions. Roanoke-based Dominion Bankshares lost $37 million last year, and its 36 principal officers took pay cuts of 18 to 20 percent. Chairman Warner Dalhouse got 21.5 percent less in 1990 than in 1989.

Dominion could have found any number of excuses, among them the terrible banking, real-estate, regulatory and economic environment last year, to avoid linking pay with bank performance. (Indeed, the company returned to the black in the first quarter of this year, reporting $5.5 million in profits.)

Fortunately, some managers are willing to take their lumps when things get rough. It's how capitalism should work.

by CNB