How much income does one need to be satisfied, and how high does the income of others have to reach before those paid less become angry?
This became a focal question last year when hefty remuneration for corporate leaders attracted attention.
The arrest in November of then Nissan Motor Co. Chairman Carlos Ghosn for his alleged underreporting of his executive salary by billions of yen grabbed international headlines. So did the resignation en masse of board members at the Japan Investment Corp., a major public-private investment fund, over disputes between the government and its executives.
When corporations with global business operations try to hire talented individuals from the international market, they face a gap between Japanese common sense and overseas pay standards and have trouble reconciling the two factors.
Certainly, the difference is large. According to the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), the average annual remuneration among chief executive officers at S&P 500 measure corporations was about 1.5 billion yen in 2017, with the highest figure reaching some 7.8 billion yen.
In contrast in Japan, only 10 board members received 1 billion yen or more, and seven of them were foreigners, according to the Toyo Keizai database.
However, even in the United States, it is only in recent years that executive salaries began to skyrocket. During the 1950s, the average salary of top officials at major U.S. corporations was roughly 20 times the salary of an average worker. The gap was already substantial, but it ballooned to about 360 times in 2017.
This means that an average worker has to toil 360 years to earn the amount a CEO makes in a single year. The difference is more than 1,000-fold at some companies.
In the spring of 2017, a case indicative of the unreasonable pay gap in a single firm was reported in the United States. Some 16,400 workers of Walt Disney Co., which operates theme parks among other businesses, received less than the minimum wage stipulated by the federal law. The low wages at illegal levels were the result of the company's practice of deducting costume fees from the workers' wages.
The company agreed with the Department of Labor to return a total of some 425 million yen to the workers, but the company's CEO, Robert Iger, makes a similar amount in a single month.
Executive salaries have continued to surge even after they reached highs far above ordinary workers' wages, and the situation grabbed people's attention after the 2008 global economic plunge triggered by the collapse of Lehman Brothers investment bank.
In the United States, protests such as the "Occupy Wall Street" demonstrations took place. The movements are rooted in dissatisfaction with the reality that the rich keep getting richer and workers' efforts are not properly rewarded. The protests took some extreme forms.
Donald Trump was elected president, while far-right political forces expanded their presence in Europe. In Britain, a national referendum approved the country's departure from the European Union.
Ironically, however, those reactionary movements are leading to not the salvation but further impoverishment of the middle class and the poor through isolationism. Trade and foreign investments dwindle while prices go up, and the resultant economic downturn would cut more jobs.
--- Making remuneration transparent key
Leaving this situation unaddressed would only advance the destabilization of societies in industrialized economies, triggering a vicious cycle involving the further economic contraction.
But do we have any means to stem the flow?
One step in the right direction is a move in the U.S. last year that made it mandatory for all companies with publicly traded shares to reveal the pay gap between the CEO and the average worker. In the past, CEO remuneration was compared with that of other companies, driving up salaries through competition.
Providing information on wage disparities inside corporations would make it easier for investors to judge if companies would be able to continue making profits over the long run. Companies with too much of an income gap between top executives and rank-and-file workers are projected to see declining employee morale, higher turnover rates, insufficient training and diminishing sales figures and profits.
The current disclosure requirements face substantial criticism as not reflecting the reality. We expect the capacity of institutional investors with long-term management strategies for funds such as pensions to correct the course of such corporations.
Regulators have major roles to play to narrow the income gap. Effective regulations with no loopholes need the backing of each and every individual to become effective.
Consumers are not powerless. It is possible for them not to choose products and services marketed by companies with massive salary gaps between their top and lower echelons of employees. Such choices, if taken by many, can affect stock prices.
Transient anger or grief cannot trigger changes. The road toward reform is paved when many shareholders, consumers and voters use their power to monitor corporate activities.