Being the CEO of Microsoft translates into a lot of column inches. In recent days, two metaphorical inches got plenty of editorial highlights for Satya Nadella. The first was when Nadella, the Indian-American executive who took over as Microsoft CEO in February, told his USA Today interviewer that women shouldn’t ask for raises because “that’s not good karma”. Well, karma is good, but it doesn’t pay the bills.
Then days later, The Guardian reported how Nadella has become one of the tech industry’s biggest earners, with a pay package worth more than €66m. Most of this package is made up of the estimated value of one-off stock awards under a seven-year incentive scheme that is dependent on Microsoft’s shares beating the Standard & Poor’s 500 index.
The rise in income inequality is due to the massive salaries of high-income earners rather than inheritance
Now let’s not go into the nitty-gritty of what Nadella’s package consists of. Whichever way you look at it, the fact remains that €66m is a lot of money. It’s what most people would earn if they had to live and work for 500 years and survive on bread and water alone.
However, earning that much money isn’t such a rare thing, especially in the US. Consider that, compared to other countries, the US isn’t very good at economic mobility. According to the Organisation for Economic Cooperation and Development, it is Nordic countries that are especially good at giving people opportunities to move from the low to middle classes. This is the result of factors such as early childhood education and childcare policies. Redistributive and income support policies such as progressive tax systems and social transfer programmes also enhance intergenerational social mobility.
However, despite a high score in economic mobility, it is very difficult to climb any higher in Nordic countries. According to research conducted by Swedish economists Anders Bjorklund, Jesper Roine and Daniel Waldenstrom, it is practically impossible for middle class individuals to make it into the highest income tier. This, the authors suspect, is due to Sweden’s high income tax, which keep self-made individuals from accumulating wealth, while low taxes on capital makes rich families even richer.
On the other hand, the US ranks near the bottom in economic mobility. However, it’s exceptionally good at making very few people very rich, the kind for whom the Downton Abbey estate would look like social housing. In fact, according to the 2014 global wealth report from Credit Suisse, the US created more new millionaires than any other country last year.
There are currently more than 1,500 billionaires in the US, with an aggregate wealth of around $6.4 trillion. According to Forbes, Bill Gates holds the top position, with a net worth of $80.4bn. He is followed by Berkshire Hathaway CEO Warren Buffett with $68.1bn and Larry Ellison, co-founder and chairman of Oracle Corporation, whose wealth amounts to $48.1bn.
Moreover, these ultra-high net worth individuals are earners rather than heirs. This tallies with the findings from two studies. In the first study, Columbia economists Wojciech Kopczuk and Berkeley’s Emmanuel Saez studied estate tax returns from 1916 to 2000 and found that the rise in income inequality is due to the massive salaries of high-income earners rather than inheritance. In the second study, entitled Women, Wealth and Mobility, Lena Edlund and Wojciech Kopczuk analysed Forbes’s list of the 400 richest Americans and found that the super-wealthy in the US are people who earn rather than inherit their riches.
In fact, the two youngest billionaires in the US, Snapchat founders Evan Spiegel and Bobby Murphy, don’t come from rich families – the two, who aren’t even 30 years old, made their wealth thanks to their photo messaging app. And these are the young guns who are bumping off heirs – who in the US also carry the burden of high estate taxes – from the ultra-rich list.
Mind you, that doesn’t mean that it’s easy to get super-rich in the US. However, it is possible. While in other countries, you can go up a level, in the US, you have a chance of becoming astronomically wealthy.