The gap between rich and poor seems to be widening worldwide, the result of government deregulation and the dominance of market-led economic policies. As businesses are given freer rein to do whatever they want, wages at the lower end of the pay scale drop. Government revenues consequently shrink, thus making it more difficult to erect social safety nets for those who fall off the employment grid because of restructuring and other private sector “rationalization” measures.
However, as the government bailouts of the financial and automotive industries in the U.S. show, big business often needs help when the proverbial invisible hand of the market turns against it. The bailouts remain controversial in America. Japanese bailouts are less contentious, mainly because the media has yet to identify them as bailouts.
As mentioned in this column last December, the “eco car” program has less to do with promoting the use of environmentally friendly automobiles — its ostensible reason — and more to do with helping Japan’s auto industry survive the recession. Under the program, consumers who buy new electric, hybrid or clean diesel vehicles do not have to pay the automobile acquisition and weight taxes, and they can receive a government-subsidized rebate.
Car sales have been good as a result. So good, in fact, that the auto industry is urging the government to extend the program — which has been extended once already — before it expires at the end of September. The self-serving reasons are easy to understand, but car companies try to make it seem as if they’re thinking about consumers. Because eco cars are so popular, there’s a backlog in orders. Right now, the time between signing a contract and receiving delivery of Toyota’s Prius, for example, is almost two and a half months, and since a buyer can only get a rebate after he registers the car — which he can’t do until it’s delivered — people who buy a Prius in the next month may not be able to receive the rebates when their cars are finally ready.
With that sort of logic, the eco car program could be extended indefinitely, but that means the government would have to budget more money. They’ve already put aside ¥630 billion for the rebates to cover some 4.5 million cars, and the tax cuts means that government revenues are that much poorer. So as much as the eco car program seems to help consumers, those benefits are paid for by taxpayers, many of whom aren’t buying new cars.
The auto industry justifies this government largess by saying that too many people rely on the industry for their livelihoods. This argument is valid up to a point, but it was made laughable by the recent disclosure of top management salaries.
Listed companies must now publicly reveal the salaries of executives who make more than ¥100 million a year, and the first list of top earners was released earlier this month. Traditionally, top executives of Japanese corporations are chosen from within the organization, or they are scions of owner-families. In the past, it was difficult to find a Japanese CEO who made more than 10 times the salary of the company’s entry-level staff. The new regulation implies that this gap has increased.
But no one was prepared for just how much. At the top of the list was Carlos Ghosn, the Lebanon-born, Brazil-passport-carrying, France-residing head of Nissan, who made ¥891 million in 2009, or 142 times the money earned by the lowest regular Nissan employee. In the weeks since the disclosure, the media have tried to figure out why Ghosn deserved this much money despite the fact that, as the magazine Aera put it, he’s a “nonregular CEO” who spends at most 10 days a month in Japan. The person who is really managing Nissan is its chief operating officer, Toshiyuki Shiga, who made ¥134 million.
Ghosn explained that Nissan referred to the compensation of “global companies” to determine his pay. In that regard his compensation isn’t really that high, he said, and he’s right. In the U.S., the average CEO of a major company in 2007 earned 275 times the salary of his or her average employee. Ghosn made this comment at a meeting of shareholders who, it should be noted, aren’t getting a dividend this year. Though Nissan returned to the black in fiscal 2009 thanks to the eco car program, Ghosn’s compensation was based on the company’s 2008 performance, when it was ¥230 billion in the red. Will he make even more money next year?
According to Aera, Renault, which is Ghosn’s primary employer, “forced” his big pay package on Nissan. Renault owns 37 percent of Nissan, which gives it a say in management. Adding insult to injury, Nissan is not paying any corporate tax this year (neither is Toyota, and both companies refuse to talk about it). It carried over part of its debt from fiscal 2008 to fiscal 2009, and thanks to his own creative accounting, Ghosn pays less tax in Japan than you might expect because his primary residence is in France.
Ghosn’s success in turning Nissan around after he was installed as CEO in 1999 was based on restructuring rather than on the kind of criteria that usually determines the worth of an executive, such as improved market share or productivity. He brought Nissan back from the brink by firing people, which these days has become the most accepted method for boosting a company’s stock price. As a retired executive who wrote a letter to the Asahi Shimbun put it, managers no longer need brains, only a willingness to be “ruthless.”
It also helps if you can convince the government you need its help. Anyone who reads this story will come away with the impression that the windfall Nissan received from the eco car program didn’t go to its employees or stockholders, but to Ghosn, presumably because Nissan needs to show the world it’s generous to its top brass — a requirement if you want to be an “international” company.