If the world is getting smaller, why is the gap in executive salaries paid in different parts of the global village widening?

Consider Larry Fish. The 57-year-old is president and chief executive of Citizens Financial Group Inc, the Providence, Rhode Island, subsidiary of Royal Bank of Scotland Group. His total compensation for the 15 months ended in December 2000 was about USD 13.8 million. Yet Fred Goodwin, the big bank's Edinburgh-based CEO, earned far less during the same period: about USD 3.2 million.  And Fish isn't the only Royal Bank employee making more than the boss. "Several executives currently make more than Fred Goodwin," says Howard Moody, a bank spokesman. The company would confirm only that a "small number" of those executives are in the US. Royal Bank says the huge discrepancy in the two executives' compensation in 2000 was the result of a one-time bonus of about USD 12 million. Fish received from a long-term incentive plan designed to mimic stock-option plans in the US. In 2001, though, Fish earned USD 3.2 million, while Goodwin earned USD 2.2 million. Royal Bank says Fish's lucrative pay package has been well accepted by Goodwin and other executives. The arrangement "brings us absolutely no management issues," says Moody. The company says Fish and Goodwin never comment on compensation. Beating the boss's salary In many cases, US managers of a foreign-based company make more than their counterparts abroad. But it's becoming more and more common to have at least one US-based executive of a foreign business command higher compensation than the big boss of an overseas parent. What's the reason? Most often, the exchange rate can cause disparities when executives from the same company get paid in separate currencies. Another reason is that some overseas companies actively recruit US executives with "Americanised" compensation plans, involving a greater proportion of compensation from stock options than is typical for foreign executives. Some firms have removed caps on annual incentive plans in the US in an effort to retain talent. Others grant US employees part of their bonus in stock, a rarity outside the US. All this makes for an awkward situation within the company, and sometimes outside it as well. One British newspaper, for instance, said in an editorial that Fish "works in the United States and is paid there, where 'greed is good' rules about executive rewards apply." German compensation Pay gaps became a thorny issue after the 1998 merger of Daimler-Benz AG and Chrysler Corp. The prior year, Chrysler Chairman Robert Eaton got USD 16 million in salary, bonus and stock options. His German counterpart, Juergen Schrempp, earned about one-eighth as much. When the auto-makers merged, Schrempp and Eaton became co-chairmen of the new German company. Outraged shareholders attending DaimlerChrysler AG's 1999 annual meeting asked management how it planned to close the gap between US and German executive pay. The company reportedly didn't provide clear-cut answers. In 2000, DaimlerChrysler implemented a stock-option plan under which 6,000 executives — including 2,000 based in the US — were eligible for 96 million options that could be issued over the subsequent five years. A spokesman says the plan wasn't designed to correct a pay disparity but rather to "create a common corporate compensation system" for executives around the world. Post-merger salary figures aren't available because German law doesn't require corporations to report individual executive salaries; instead, salaries are reported as a total number for the company without breakdowns. Eaton is now retired, and the highest-ranking DaimlerChrysler executive currently working in the US is Dieter Zetsche, president and chief executive of its Chrysler arm. It's not known whether anyone at DaimlerChrysler earns more than Schrempp, the current chairman. Indeed, it's difficult to assess the extent of the pay gap between US-based executives and their foreign employers' leaders because of countries' different disclosure laws. While pay disclosure is mandatory in the US, Canada and Britain, "there's no real way to track this" elsewhere, says John England, a principal at New York pay consultants Towers Perrin. He believes the trend is more common among smaller multinational companies looking to attract and retain executives, because larger firms have already been forced by the global market for talent to raise pay levels. After buying a Farmington, Connecticut, insurer in 1999, Royal & Sun Alliance Insurance Group decided to take the stock-option approach to compensating its US employees. When the British insurer bought Orion Capital Corp., it reviewed long-term incentives for its US managers. RSA commissioned a study of pay practices in the US property-and-casualty industry. RSA declined to discuss details of the survey, but said it highlighted a number of different approaches that helped establish the company's reward strategy in the US. Last year, RSA shareholders approved a stock-option plan aimed solely at US senior executives. "When you compete for talent in the US, or any market for that matter, you have to offer competitive compensation for that particular market," says a spokesman. Few complaints At the same time, RSA also introduced a discount stock-purchase plan for all of its US employees. "No doubt, somebody somewhere in RSA complained about what they might have perceived as the generous treatment of their US colleagues," says a RSA spokesman. But "their complaints were not particularly audible or widespread." Despite such plans, he adds, no one in the US earns more than RSA Chief Executive Bob Mendelsohn — so far. So why don't the foreign executives raise their own salaries to US levels? One reason is perceptions. "They don't want to be labeled as 'greedy' the way US executives are sometimes labeled," says Heidi Toppel, a Boston executive-compensation consultant for Watson Wyatt Worldwide, a Washington, DC, benefits consultant. Foreign executives of overseas companies do enjoy certain perquisites that many US executives don't get. For instance, it's much more common for top executives in Japan and Britain to get country-club memberships, cars, apartments or summer homes. But the actual salary gap may soon narrow as a matter of necessity, other pay experts predict. "You've got a global economy, and the talent necessary to run some of these companies is perceived to be in short supply," says William Brown, vice president of compensation consulting at Organisation Resources Counselors., a New York human-resources management consulting firm. "You will start to see a rise in the compensation of the foreign parent's CEO." Kemba J. Dunham is a Staff Reporter with The Wall Street Journal Subject: expat careers