This file is a brief single-author economic essay. Its scope is narrow but polemical: Sennholz enters the early-2000s controversy over executive pay by separating market remuneration from monetary-bubble windfalls and fraud. The essay’s main thesis is that CEO compensation, when genuinely paid for scarce managerial ability or entrepreneurial achievement, is governed by the same market forces as other wages; what deserves criticism is not high pay as such, but unearned “bubble lucre” created by Federal Reserve credit expansion and captured through equity-based compensation.
Sennholz begins by recasting indignation over CEO pay as a political and moral problem. The opening sentence sets the tone: resentment, not analysis, often drives denunciations of executive income.
Nothing sharpens the sight like envy.
Against this envy-based critique, he insists that CEO compensation is not exempt from economic law. The CEO post is prestigious and lucrative, but precisely for that reason intensely competitive. Its remuneration reflects bids for scarce ability, not merely executive greed.
It is determined by the forces of demand and supply, just like any other wage or salary, and may consist of a base pay plus equity-based incentives such as bonuses, stock options, and other equity vehicles.
The essay then makes its central conceptual move: it decomposes CEO income into three categories—managerial labor, interest, and entrepreneurial profit. Managerial labor is treated as a factor of production purchased in a competitive market. A firm must pay enough to attract the executive away from rivals, but not more than the expected contribution justifies. This leads to Sennholz’s property-rights test of fair compensation:
A company that pays more than the market price makes a gift of stockholder income or property; a company that pays less does not attract the best available manager.
His second category, interest, broadens the meaning of corporate income beyond reported “net interest.” He treats much of profit as a return on saved and invested capital, especially where executives are also owners. This lets him distinguish ownership returns from wages without condemning either. The third category, entrepreneurial profit, is reserved for founders and genuine innovators who discover new ways of serving consumers.
CEOs who are the founders and owners of successful enterprises are true entrepreneurs.
Yet Sennholz’s defense of market pay is not a blanket celebration of corporate executives. A key turn in the essay is his insistence that most large-company CEOs are not entrepreneurs in the heroic Rockefeller-Carnegie-Ford sense. They are trained managers, organization men, and political operators within corporate hierarchy.
Few chief executive officers of large companies are true entrepreneurs.
This distinction prepares the essay’s critique of 1990s compensation. In normal times, Sennholz says, CEO pay may be mostly salary, with a smaller component of stock-option gains that rewards improved sales or profits. But during the 1990s, he argues, Federal Reserve policy distorted financial markets by pushing credit conditions below market rates. Equity prices rose far faster than underlying corporate income, causing option-based executive compensation to explode. The problem, then, is not the market pricing of managerial labor but asset inflation masquerading as achievement.
Sadly, the mansions, yachts, and private jets bestowed on CEOs were unearned, consisting of stockholder income or even stockholder equity; they were "bubble lucre".
The essay’s final movement connects bubble wealth to dishonesty. Some executives, lacking both entrepreneurial ability and virtue, manipulated earnings reports to enlarge price-earnings ratios and capture more of the inflated gains. Sennholz includes quasi-private institutions such as stock exchanges in this moral diagnosis, but he refuses to stop with individual greed. The deeper causal responsibility lies, in his view, with the monetary authorities who generated the boom conditions.
To judge them properly, we must not overlook the governors of the Federal Reserve System who blew the bubbles and created the temptations.
The relevance of the essay lies in this double argument. Sennholz rejects egalitarian outrage over high CEO pay, defending competitive compensation and entrepreneurial reward. But he also rejects the legitimacy of windfall fortunes produced by monetary manipulation, accounting fraud, and transfers from stockholder wealth. Its structure moves from envy, to market theory, to income classification, to historical entrepreneurship, to bubble-era corruption. The result is a compact free-market critique of CEO remuneration that condemns not inequality itself, but the confusion of earned market income with gains manufactured by credit expansion and financial illusion.
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