CEO Pay in Sweden
Carl-Henric Svanberg would be richer as an American.
I don’t read a ton of business news, but somehow this story caught my eye: “The British oil giant, BP, on Thursday named the chief executive of the Swedish telecommunication company Ericsson as its new chairman in a surprise move to help the company control costs.”
One tactic the man in question, Carl-Henric Svanberg, may want to consider is moving toward a more Swedish-style model of executive compensation. As I’ve noted before, corporate nationality appears to matter a great deal when it comes to executive compensation. Companies are typically helmed by CEOs from the country in which they’re based, even though firms like Ericsson and BP are totally globalized in their operations, and then nationality makes a difference in pay. American CEOs get paid more than British CEOs who get paid more than continental or Japanese CEOs. You see the same pattern here, where for his labors at Ericsson last year, Svanberg earned 20,423,391 Swedish kroner which comes out to be a bit more than $2.5 million. Ericsson is 289 on the Forbes 500 list. One slot down is Hindustan Petroleum, who’s the founder of the company and pays himself a very modest $200,000 a year. Then at 300 on the list you get to Aetna whose CEO Ronald Williams took home $38.12 million last year. That’s over fifteen times Svanberg’s compensation in Sweden.
Obviously, for any given pair of firms you can explain this kind of discrepancy away, but you really do see the pattern over and over and over again in a way that’s hard to explain as anything other than corporate nationality being a key difference-maker. Leif Johansson, CEO of Volvo, Sweden’s largest firm, makes even less—15.7 million kroner.
45 Responses to “CEO Pay in Sweden”
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June 25th, 2009 at 1:02 pm
How long until companies outsource the jobs of CEO or Board member to India?
June 25th, 2009 at 1:10 pm
Yeah, yeah, yeah, wage arbitrage is a crock. We knew that.
June 25th, 2009 at 1:12 pm
I guess if your name is Hindustan Petroleum, you’re pretty much predestined to found an Indian oil company. Just like Mr. Coffee or Duncan Donuts
June 25th, 2009 at 1:16 pm
American CEO’s rationalize their outsized compensation with the cannard that no one else could do what they do at a cheaper price. This is of course nothing but self serving bullshit but you will never hear this from the guys at CNBC.
If you did, Jack Welch wouldn’t return their calls anymore.
June 25th, 2009 at 1:21 pm
OK the link that give above for Hindustan Petroleum, instead shows a person named Ajit Balakrishnan who founded Rediff.com, an Indian web portal.
June 25th, 2009 at 1:33 pm
@ny nick
It’s actually one step removed from that; they rationalize their compensation by claiming that their investors demand a proven executive, and that a proven executive should fetch a high salary. Investors demand this because otherwise, other investors would lack confidence in the company and the price of their stock would drop. See, the smart investors realize that someone could do the same job for less but are worried about the mythical dumb investors who are impressed by Jack Welch… or so says the CEO.
June 25th, 2009 at 1:41 pm
Who cares? How does their compensation compare to what Cleveland will pay Shaq?
June 25th, 2009 at 1:41 pm
There is the question, of course, if you are an investor (as I occasionally could be), that for you as an investor a $60-million CEO’s salary is not something to scream about if he’s running a $30-billion-a-year company.
Look, if he’s making money for you and lots of you, and if he performs well and seems to be clever and knows what to do to make sure your investments grow, $60-million is not even a drop in the bucket compared to the company he’s running. That stuff doesn’t even count for rounding error.
Why would an investor care? As long as he’s making money, he wants his managers compensated, and compensated well. When it comes to executive pay, there is never too much, but too little. The only times this sort of thing becomes a problem is when the company starts losing money, but then executive compensation is probably the last thing you should be worrying about when your money is evaporating into thin air.
June 25th, 2009 at 1:48 pm
Frankly, if I were the investor in a multinational, I would want to make sure that the CEO is paid enough so that they can get hedge-fund level geniuses. Let’s not forget how much of losses can come from currency miscalculations.
Sort of like the Toyota losses recently. Their guys in the currency-hedging department were pretty obviously complete idiots, and so they didn’t hedge properly, and ended up eating a far bigger loss than they would have had they hired some foreign exchange market brains to make sure they aren’t eating currency losses and taking it on the chin.
(Hello, ludicrously high yen? Weird dollar movements? You would have thought that the biggest auto company in the world would have hedged the least complicated trade, dollar-yen, properly.)
June 25th, 2009 at 1:54 pm
Myles is right, successful investors don’t care about wasting money.
June 25th, 2009 at 1:56 pm
Frankly, if I were the investor in a multinational, I would want to make sure that the CEO is paid enough so that they can get hedge-fund level geniuses. Let’s not forget how much of losses can come from currency miscalculations.
With Myles, the jokes just write themselves.
June 25th, 2009 at 2:05 pm
With Myles, the jokes just write themselves.
Check the history of Toyota’s really fucking stupid currency losses, that would have been averted by a roomful of half-a-million-a-year guys not from the Japanese salarymen background, before you talk.
Large Korean and Japanese industrials are famous for being complete idiots when it comes to currency hedging.
June 25th, 2009 at 2:07 pm
If you read the FT you would have noticed this far more interesting oped on limiting pay:
Obama must act to curb executive greed
By Leo Hindery
“….First, Congress needs immediately to grant public shareholders the right to call shareholders’ meetings, to vote out the current board and to pass binding (not simply advisory) votes on executive compensation.
Second, Congress should establish, for all public companies, a ceiling on individual executive compensation as a reasonable multiple of average employee compensation – say, 35 times – and then penalise through tax policies those companies that elect to pay anyone in excess of this multiple.
Third, Congress should empower the Treasury to oversee the compensation practices of any entity that is regulated, whether or not it currently relies on government guarantees. This should apply to employees at the individual trader level, too.”
…
June 25th, 2009 at 2:07 pm
Link here: http://www.ft.com/cms/s/0/463f35f8-60e8-11de-aa12-00144feabdc0.html
June 25th, 2009 at 2:44 pm
I like how Myles pounds on the idea that “Large Korean and Japanese industrials are famous for being complete idiots when it comes to currency hedging.” It’s really great since Toyota, Hyundai, Samsung, and Sony have either run their American counterparts out of business or are on the verge of doing so.
Meanwhile, the “hedge-fund geniuses” destroyed not just their own companies, but also companies they did business with, companies that were only tangentially related to them, and thousands of companies that had no relation to them whatsoever. Not that’s some financial acumen!
June 25th, 2009 at 2:45 pm
Yes, if only they had paid enough to attract someone like Richard Thoman. And too bad Bernie Madoff’s currently unavailable. Still, Lehman Brothers probably left some highly-compensated geniuses at loose ends, and they’re not the only ones.
Also, “check the history before you talk”? With Myles, the jokes just write themselves.
June 25th, 2009 at 2:54 pm
I don’t know if Mr Yglesias’s example is always the case with Swedish CEO S.
The founder of IKEA is apparently very rich.No one seems to know exactly how rich he is since he took his money to Switzerland and is living there himself to avoid Swedish taxes.
June 25th, 2009 at 3:07 pm
Well Pete, yes, the CEO of Ikea is doing a few things to keep his money from the Swedes. (I think he also has a foundation run out of the Netherlands.) But that does nothing to change Matt’s point.
June 25th, 2009 at 3:27 pm
Regarding comments 17 and 18
Mr. David
I do not deny that ceo pay is out of hand in America ,and that Sweden is probably a lot better in that regard.
But my point was that there are rich CEO S over there as well.The IKEA founder ,Ingvar Kamprad ,is not living in Switzerland for his health.He is trying to avoid Swedish taxes.If you Google his name you will see that he is a billionare.
I am not saying that he isn’t a nice guy. I am simply saying that some Swedish CEO s are rich.
Thank you for your reply to my comment MR David and best regards to you
June 25th, 2009 at 3:46 pm
pete:
Perhaps my point wasn’t clear. Ingvar Kamprad took Ikea and left Sweden to avoid precisely these sorts of things, which means that Matt is right: Swedish companies don’t pay as outrageous of salaries to CEOs. See here for more on Ikea not being a Swedish company:
Although IKEA is one of Sweden’s best-known exports, it has not in a strict legal sense been Swedish since the early 1980s…
The parent for all IKEA companies—the operator of 207 of the 235 worldwide IKEA stores—is Ingka Holding, a private Dutch-registered company. Ingka Holding, in turn, belongs entirely to Stichting Ingka Foundation. This is a Dutch-registered, tax-exempt, non-profit-making legal entity, which was given the shares of Mr Kamprad in 1982. Stichtingen, or foundations, are the most common form of not-for-profit organisation in the Netherlands; tens of thousands of them are registered.
June 25th, 2009 at 3:52 pm
David’s point is precisely that Kamprad isn’t a nice guy and takes extraordinary measures to avoid Swedish taxes, which actually strengthens Matt’s point that in Sweden, CEOs are paid much more reasonably. The point is made through the example of Kamprad, who took all kinds of shady steps to make Ikea *not* a Swedish company precisely because of Matt’s point about their sensible compensation policies.
June 25th, 2009 at 3:57 pm
It never stops at the $60 million squandered on the CEO. His pay then justifies the other senior execs, and the Board, and all of their off-the-books-options, and the jets, and the level of the office decor, etc.
When you add all that crap up, you’re talking a few percentage points off of the net… which comes directly out of the dividends, and which then affects the value of the stock.
The reason that American execs rake in so much isn’t because they’re delivering commensurate stockholder value, it’s because they can.
June 25th, 2009 at 4:00 pm
So Yglesias and the radical left is outraged and want to protect the shareholders from the avidity and imperialism of the managers ? Interesting.
June 25th, 2009 at 4:02 pm
regarding comments 17,18,19 and 20
Mr David
Thank you for the links.I don’t disagree with MR Yglesias’s basic point, or yours for that matter.But I think that the reason MR Kamprad moved to Switzerland was because of high taxes , not salary.
And while I am sure that he is generouse to charities, he does seem to be trying to avoid Swedish taxes.I can’t say that i blame him, they are very high.
Mr Yglesias seems to think that the lower pay of Swedish ceos is because of Swedish eglitarianism.That could be true.It might also have to do with their high taxes. I think it is a little of both.
Either way, I agree with MR Yglesias’s basic point that our ceo s are paid obscene amounts.But unfourtantly we are not alone in this regard. The British are pretty bad in that department as well.
Again, thank you for your reply MR David and best regards to you.
June 25th, 2009 at 4:09 pm
Pete, we’re talking about salaries, not after-tax income.
Look at this:
A statement like that refers to earnings, not after-tax take home.
Kamprad’s charitable donations have nothing to do with it. The point is that Swedish CEOs are paid less. The fact that Kamprad went to great lengths to establish his company outside of Sweden is evidence for this basic point. Swedish taxes are a different matter, but, like CEO pay, do relate to Swedish egalitarianism.
David is not defending Kamprad, he’s saying that bringing him up is irrelevant to Matt’s point and, if anything, actually strengthens Matt’s point, whereas you seem to think it weakens it.
June 25th, 2009 at 4:10 pm
OT: what’s with the “MR”? Is someone trying to drive home a POINT? Or this the sign of Wordpress plug-in gone wild?
June 25th, 2009 at 4:12 pm
Pete, I should add, you are the one who brought up Kamprad. Whether he relocated to earn more or avoid Swedish taxes is, quite honestly, not at all relevant to this discussion, which is about the fact that Swedish CEOs earn less.
You tried to raise Kamprad as a counter-example of a Swedish CEO who earns a lot. This counter-example was credibly dismissed by David as not relevant, so you, for some reason, start talking about how Kamprad left Sweden to avoid taxes. Uh, ok….how does that relate to Matt’s point about CEO pay? It doesn’t.
You tried to raise a counter-example, it didn’t work. Walk away.
June 25th, 2009 at 4:12 pm
What Anthony said. Also, the charity is not a good thing. It is a loophole to lower his taxes and still maintain control over Ikea. More from the article:
What emerges is an outfit that ingeniously exploits the quirks of different jurisdictions to create a charity, dedicated to a somewhat banal cause, that is not only the world’s richest foundation, but is at the moment also one of its least generous. The overall set-up of IKEA minimises tax and disclosure, handsomely rewards the founding Kamprad family and makes IKEA immune to a takeover. And if that seems too good to be true, it is: these arrangements are extremely hard to undo. The benefits from all this ingenuity come at the price of a huge constraint on the successors to Ingvar Kamprad, the store’s founder (pictured above), to do with IKEA as they see fit.
June 25th, 2009 at 4:13 pm
cmholm:
He does that all the time. Courtly gentility in all caps.
June 25th, 2009 at 4:25 pm
I see that not much has changed on this blog while i was on vacation. My point was that Mr Yglesias has written in many posts about Swedish eglitarianism.He seemed to me to be trying to make the same point here.
My simple point was that not all Swedish ceos have low salaries.It was a simple point.
There are some people here who love to get in useless debates about small points.Mr Anthony ,With all due respect i am not going to go over my point with you over and over ,since you do not want to make a point ,you simply like to engage in some sort of weird “gladitorial”inttellectual combat.
I have no problem with inntellectual discussions .But you seem to want to have an arguement for the sake of having an arguement.this is defintly not the first time this has happenened.I have seen you spend hours argueing with people on this blog and even calling them “assholes”.
I have other [and better]things to do tonight.
Thanks again MR David for the links.It was a pleasure discusing this issue with you.
June 25th, 2009 at 4:31 pm
Pete, this doesn’t seem like an irrelevant detail, but rather a case where the devil is in the details. You say that I don’t want to make a point; I think my point was fairly clear.
You tried to add nuance to Matt’s point that Swedish CEOs earn less by raising an example that was shown to be irrelevant. You responded by raising even less relevant points about Swedish taxes. Then you said it is all a minor matter and “small points.”
Well actually, you are the one who tried to temper Matt’s argument with a counter-example. In light of that, whether the counter-example stands or falls, whether Matt’s point can stand as is or needs to be refined, is *the* issue, not some minor argument for argument’s sake.
Try to pay attention. You say things. I and others respond to what you say, and you respond with either “that doesn’t matter” or “read my mind, not what I write.” I’m sure you can see where both are less than productive.
All the very best to you MR PETE.
June 25th, 2009 at 4:34 pm
I have seen you spend hours argueing with people on this blog and even calling them “assholes”.
Yes, this blog has lately attracted numerous racist assholes to its comment sections. It is important to point out the asshole racism rather than give it credibility as an argument.
There are also people like you, who unproblematically assert (and try to get others to recognise) the lie that soldiers are, by virtue of being American soldiers, fighting to “defend our freedom.” This is pernicious sloganeering that works against criticism and debate, so yes, I will call it out as the asshole behaviour that it is.
June 25th, 2009 at 4:38 pm
My simple point was that not all Swedish ceos have low salaries.It was a simple point.
Yes, and a false one. At the very least, you didn’t demonstrate it at all through the example of a Swedish person who has gone to great lengths to make his company *non-Swedish* to earn a higher salary, avoid taxes, etc. (If a Swedish person came to America and became a CEO, this would hardly count as a counter-example to the claim that Swedish CEOs earn less money. It is clear that the claim is about Swedish CEOs of Swedish companies in Sweden. Invoking the Ikea CEO b/c he is originally from Sweden is either intellectually honest or willfully obtuse. You knew Matt was talking about Swedish CEOs of Swedish companies in Sweden, ie he was talking about Swedish society and policy—raising a Swede who went abroad to earn more has nothing at all to do with this point.)
Of course, one can’t argue these things with you or show you how your comments and evidence don’t mean or show what you think they do because then you throw around accusations of focusing on minor details and small points. It’s really getting tired. Pay attention to what you right, make clear arguments and don’t take your marbles and go home when counter-arguments are raised.
June 25th, 2009 at 4:43 pm
Kamprad, like Bill Gates, became crazy rich not from his salary, but from having started a very successful business and been able to retain ownership of a large part. That’s quite different from being a CEO who is just another employee.
June 25th, 2009 at 5:04 pm
Yeah, what snoddas said. We’re talking about CEO pay here, not entrepreneurs’ wealth (or their family).
June 25th, 2009 at 5:22 pm
All I know is Toyota has a new CEO, Aiko Toyoda, and he is clearly insane. He held a press conference and apologized to, I think, every human being in the world. He essentially said he was sorry that Toyota, due to billions in losses, would not be able to fulfill its primary mission -employing all humanity.
He then got Nationalistic and spoke directly to the Japanese people. He told them, in no uncertain terms, that Toyota was a national disgrace because, for the time being, it could not pay a shitload of taxes to the Japanese government.
What did he say? Call the men in white coats, Aiko needs a straightjacket.
Give me an old fashioned straight talking American CEO with a unfriendly fuck you for everyone.
June 25th, 2009 at 5:29 pm
Aiko is not Swedish.
Yeah, what snoddas said. We’re talking about CEO pay here, not entrepreneurs’ wealth (or their family).
Yes, but Pete thinks such distinctions are just getting bogged down in minor issues for argument’s sake. Then he tells you what’s really important in life. Arguing with him is such a joy.
June 25th, 2009 at 6:44 pm
All I know is Toyota has a new CEO, Aiko Toyoda, and he is clearly insane.
Imagine growing up and being reminded that you are the heir to the great Toyota (originally spelled Toyoda) legacy, and you are to be Atlas holding up the great responsibility.
Tell me if that doesn’t drive you insane. Again, the Japansese/Korean systems are done and over. Look at Singapore, pretty much the only rich Asian country with a healthy economy. It doesn’t work the Japanese/Korean way.
June 25th, 2009 at 8:57 pm
Tell me if that doesn’t drive you insane. Again, the Japansese/Korean systems are done and over. Look at Singapore, pretty much the only rich Asian country with a healthy economy. It doesn’t work the Japanese/Korean way.
Myles, you ought to be aware that Singapore is run by an authoritarian corporatist government (fascism in its most literal sense) that, moreover, pays its government workers salaries commensurate with the best of the private sector.
Also, Singapore has 4.6 million people. Korea has 48.7 and Japan has over 125.
THEY ARE NOT COMPARABLE IN ANY WAY
You could compare Singapore to Hong Kong or Dubai or even Norway, but Japan is bigger than Singapore cubed
June 25th, 2009 at 9:24 pm
“[The founder of Ikea] he took his money to Switzerland and is living there himself to avoid Swedish taxes.”
That and Lagom. (http://en.wikipedia.org/wiki/Lagom)
To see a hilarious illustration of Lagom, see the Daily Show segment on Sweden where they compared 50 Cent and Robyn.
June 25th, 2009 at 9:48 pm
The founder of IKEA is apparently very rich.
Founders of successful companies should be very rich: they are major shareholders. A CEO is just a hired employee who’s there to serve the shareholders. And if shareholders could be best-served hiring CEOs from India at $200k/yr, then so be it.
June 25th, 2009 at 10:21 pm
You could compare Singapore to Hong Kong or Dubai or even Norway, but Japan is bigger than Singapore cubed
Germany is comparable in size to Japan, and bigger than Korea. The Germany economy is similarly prosperous to the Swiss economy, which bears more than a few resemblances to the Singaporean economy (the sample size, for example).
Look, a country whose seniors are stealing from supermarkets for food is not in a healthy economic state. And that’s Japan right now (that’s actually for real.)
pays its government workers salaries commensurate with the best of the private sector.
Which is good, I presume? This surely vindicates the principle of you get what you pay for. You pay top dollar for top bureaucrats, you get top policies. I see absolutely nothing wrong with it. In fact, this would strengthen the case for high executive pay.
authoritarian corporatist government (fascism in its most literal sense) that
With fairly strong rule of law (excepting some very dubious lawsuits from the government side against dissidents). The rule of law in Singapore almost certainly stronger than in South Korea. You can’t be fascist and rule-of-law at the same time. Fascism is a rejection of traditional institutionalism.
I mean, this is a country with a stronger rule-of-law, and a better economy, than South Korea. Think about it. Reductio ad absurdum, you would be implying that what you deem fascism to be materially superior to (quite anarchic and at times histrionic) Korean democracy.
June 25th, 2009 at 10:27 pm
I can see why some people might be reluctant to reject the Japanese-Korean model, being as it is affirmative in many of the social goals sought by those are lean liberal, but economically they are so dead it’s not funny.
While General Motors and perhaps the entire auto industry has been a national laughingstock, the entire Japanese economy has been a zombie, sort of a walking undead, for the last two decades. It’s frightening, slow-moving train wreck. I am sad that it is in such a state, and feel no satisfaction in seeing its economic model being torn to pieces. (15% year-on-year GDP contraction, seriously?)
It’s even worse for the Koreans. There is, except for the electronic industry, not a single Korean firm that is globally competitive. Underselling your rivals with ludicrously cheap, shoddy, badly designed, and in general awful cars do not count.
You’ll notice that I don’t lump China in that mix; China is actually practicing (somewhat) genuine capitalism, based on Schumpeterian destruction.
June 26th, 2009 at 2:23 am
Creative destruction is fantastic. When I was I kid, I used to blow up ant colonies with strategically linked M-80’s. What a maniacal laugh riot that was.
Now, as a nominal Buddhist, I can’t even sink a goddamn tentpole for fear of injuring one of those tiny motherfuckers.
Thank the desert god that a week kneed Willie like me is not in charge of the world’s economy. It would be in BAD shape.
June 26th, 2009 at 4:28 pm
Re #8 (Myles)
At some point (I believe well short of the current excessive rates) high salary will encourage very short-sighted management. For some investors, this is clearly OK, but for many others, this is not.
This was displayed in spades during the recent meltdown. If all you cared about was maximal rate of return on the short term, then the high flying financial industry was the best bet. Maximum risk allows for maximum gain. Course there was a downside…
I believe I have a decent rule of thumb as to the tipping point. If the wage allows the recipient to be “set for life” within a very short period, then any amount past that encourages “get out quick and dirty” behavior. I think 10 -20 times a years salary of the solid middle of the company represents a good estimate of the tipping point. More then this, and the recipient long term plan horizon shrinks to nothing.