Capitalism's boil.

NEW YORK, APRIL 19

EVERY ten years I quote an adage from the late Austrian analyst Willi Schlamm, and I hope that ten years from now someone will remember to quote it in my memory. It goes: "The trouble with socialism is socialism. The trouble with capitalism is capitalists." What brought this on this time around was the recapitulation of executive plunder featuring, but hardly limited to, Viacom. The top three executives at Viacom received total compensation last year valued at about $52 million to $56 million each in salary, bonus, and stock options.

We got, in one story of these goings-on--by Geraldine Fabrikant in the New York Times--a whiff of sobriety, as from someone hanging onto a tree limb in a landslide. Ms. Fabrikant quotes Brian Foley, "a longtime compensation specialist," and what he said was, "The compensation is beyond breathtaking." Viacom's share price, in the year of the gold rush for its managers, decreased by 18 percent.

We learn from Viacom's SEC filing that its 81-year-old CEO, Sumner Redstone, is presumably guarding against the hazards of senior-citizen penury. His salary was $4.97 million, and he received a bonus of $16.5 million. We think we see traces of sibling rivalry, because one of Viacom's co-presidents, Tom Freston, received only $16 million in bonus. Viacom's other co-president, Leslie Moonves, has got to have done something truly humiliating, because his bonus was only $14 million. (However, all three received more than $30 million in stock options.)

Why does capitalism tolerate such institutional embarrassments? The answer has to be that embarrassment isn't being felt. Consider excruciating, but apparently tolerable, incidentals. Freston is based in New York. But occasionally business requires him to be in Los Angeles, where he also has a home. On those nights does he take hotel rooms? No. He charges the company what he thinks is appropriate to pay him for using his own home. In 2004, this amounted to $43,000.

Mr. Freston is evidently a man with simpler habits than the Los Angeles-based Mr. Moonves. He does the same kind of thing; he has his own home in New York, but what he charged the company for the nights he spent in New York was $105,000.

Here and there efforts are being made to impose correlations of some sort between executives' compensation and stock performance. "The secret to linking pay to performance remains elusive," writes Claudia Deutsch of the New York Times. "Net income at Eli Lilly fell 29 percent and its return to shareholders dropped 17 percent last year, but its chief executive, Sidney Taurel, saw his pay go up 41 percent, to $12.5 million." There doesn't seem to be anything elusive about that: The boss aggrandizes.

One does have to allow for the truly unique person. If Thomas Edison were alive today, it would be unwise to cavil at any arrangement made by a company seeking his services exclusively. Bill Gates is not a genius on that order, though his gifts are complementary to Edison's--Gates knows how to exploit a technological epiphany. Edison had the epiphanies, but was no good at all at exploiting them. Imagine if Gates had come up with the patent to the light bulb.

What dismays is the utter lack of class in such businesses and businessmen here parading their skills in distortion. Michael Eisner appears twice in the table of the 25 largest compensation packages paid in one year. In 1993 he took home $203 million. In 1998, $575.6 million.

That money was taken, directly, from company shareholders. But the loss, viewed on a larger scale, is a loss to the community of people who believe in the capitalist free-market system. Extortions of that size tell us, really, that the market system is not working in respect of executive remuneration. What is going on is phony. It is shoddy, it is contemptible, and it is philosophically blasphemous.

The compliant should consider founding a new company, Executive Remuneration Corp. (ERC); the value of its shares to fluctuate according to the salaries and bonuses and stray benefits paid out to the managers of the top 100 U.S. companies. The way things are going, stockholders would become rich in no time. And no high salaries would be needed for officers of the ERC: just one man with a tabulator, adding up the salaries of the Eisners for that year.