Tariff Walls Keep Execs Overpriced

Just as overpriced goods can be produced behind tariff walls for years, so can overpriced executives.

American executives’ salaries are protected by one of the most powerful nontariff trade barriers in the world: the Immigration and Naturalization Service. If American executives are to be true to the free market ideology, they must eliminate the protectionist barriers and let global market forces fairly decide their salaries.

Executive wages have become high-profile news, widely reported in even the business media as signs of corporate excess. The median total compensation for American executives at the country’s largest companies is about $2.4 million a year, according to a report from the Dow Jones News Service; top executives’ take is substantially higher. The Wall Street Journal reported that Andrew Grove, CEO of Intel, earns at least $61.5 million. In contrast, average private sector workers’ wages have declined 16 percent in real terms since 1970.

Executives typically justify this discrepancy with free market arguments. Executives’ salaries are high, they argue, because their skills are unique. Hourly workers, on the other hand, face increasing competition, particularly from laborers in less industrialized countries who are willing to work for substantially lower wages. The law of supply and demand, they insist, explains the increasing divergence between low- and high-paid employees.

This argument is disingenuous in ignoring the effects of immigration regulations. Theoretically, INS regulations protect all U.S. workers. In practice, they protect only those whose jobs cannot be moved abroad. When the wages of unionized American workers climb beyond what companies want to pay, plants are relocated to take advantage of lower-cost workers. But tax implications - and executives’ desire to remain at home - keep company headquarters immobile.

Enter the INS regulations, which make recruiting new managers abroad exceedingly complex, and U.S. managers are effectively shielded from “foreign made” competition. Sponsoring new foreign hires for the visa most commonly used by professionals requires applicants to prove to skeptical INS examiners that they have a specialized field of expertise and that it is lacking in the United States. It can take 18 months for an application to work its way through the bureaucracy. And even then, the INS requires that the new hire be brought in at current pay rates. For many companies, recruiting executives overseas is rarely worth the time or effort.

If American executives are to be true to their free market ideology, they must eliminate the protectionist barriers and let global market forces fairly decide their salaries.

To do that, we must ease visa and permanent residency regulations, granting foreign-born managers full citizenship in the global marketplace. Those offered jobs with U.S.-based corporations paying more than $50,000 would be given three-year work visas. If, during those three years, they continue to do satisfactory work, they would automatically become eligible for permanent residency. Some restriction on qualifying corporations would reduce the chance of misuse.

Managers from highly industrialized but relatively poor countries such as India and Brazil would jump at the chance to compete for America’s top executive jobs. So would many executives from Germany, Britain, Italy and Japan. Executive compensation in those countries is still only about half the level of what is paid here. Granting them access to the U.S. executive suite would allow corporations to do with managers what they can now do with hourly workers: hire qualified candidates who are willing to work for less.

American corporations face competition from abroad in almost every aspect of their operations. And when it comes to paying their workers, most American executives readily agree that foreign competition breeds efficiency. Let’s keep them true to their word and put American executives to the test of global competition as well.

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