The Japanese and other competitors are beating us into the ground! Let's get on our horses, work harder, tighten our belts, get lean and mean! It's for the sake of our company, and, more important, the country.

This battle cry from top executives of American companies isn't causing most workers to jump on their steeds. Instead, in too many companies, salary-starved troops are looking on with anger and cynicism as the CEO's horse falls flat on its belly, squashed by the weight of his rider's bulging pockets.

And it's by no means just union leaders and "leftists" who are angry about soaring executive pay. The fury has gone mainstream: Increasingly, it's coming from middle managers, mid- and small-sized company managers, compensation and productivity experts, frontline workers, even stockholders. It's coming from capitalistic and patriotic folks who basically believe in the American dream, but who have come to feel that executives betray their loyalty and trust by gobbling up increasingly bigger and juicier shares of the American pie. Many predict that shareholder groups will at last take strong action next year.

In February, Industry Week published a survey of managers' feelings about their own and executives' paychecks. A sizable majority -- 62 percent -- thought U.S. executive pay is too high -- compared with 60 percent three years before. But the most striking change was that readers were much more vocal and bitter than in the preceding survey. And they're even more disillusioned today.

"The ever-widening gap between CEOs and their workers is causing resentment and the loss of a true middle class," says Bob Roush, a manufacturing engineer in Portland, Ore. "We've become a nation of industrial slaves, and the CEOs are the masters of the plantation."

The average CEO of a large U.S. company makes 35 times (and, in several cases, 1,000 times) as much as the average U.S. manufacturing employee. In Japan the ratio is only 15 to 1 and in Europe 20 to 1.

In Japan the average CEO of a large firm makes about $352,000 in pay, benefits and perks, reports Towers, Perrin, Forster & Crosby (TPF&C), a New York-based consulting firm. Compare this with the mind-boggling figures recently revealed in U.S. proxy statements. Total 1989 remuneration -- including salary, bonus, stock options, restricted shares and other long-term incentive opportunities -- of the average CEO in one of the nation's 100 largest companies rose 20 percent in 1989 to a staggering $3.3 million, says Pearl Meyer & Partners, a New York consulting firm. The average CEO in these large firms took home in base salary and bonuses alone $1.4 million, up 11 percent from 1988.

The CEOs of mid-sized companies ($200 million to $5 billion in sales) -- who had some "catching up" to do, Pearl Meyer observes -- cleaned up even more. Their total remuneration skyrocketed 29 percent to an average of $2.1 million. Meanwhile, their base salaries and bonuses jumped 16 percent to an average of $900,000.

Pay differentials in the United States are taking their toll. Among middle managers "we're seeing a silent protest right now -- a kind of going through the motions," says Roush. "People on the floor are protected by unions, and CEOs can say whatever they want, but middle managers are caught between a rock and a hard place."

Such high pay discourages long-term thinking, several managers say, "How do you expect people to look five to 10 years down the road when they can make this kind of money in one year?" asks Sheldon Weinig, chairman and CEO of Materials Research Corp. in Orangeburg, N.Y., a mid-sized company recently acquired by Sony Corp. "A lot of these guys are just pigs feeding at the trough."

"No one is worth more than $300,000 a year in salary," says Kendall Hutton, director of special projects at Electronic Data Systems (EDS), Houston. Moreover, he adds, "you should be a really exceptional individual to get more than that in bonuses and options."

Downsizing is one cause of mid-management disgruntlement. In many cases, three management layers have replaced 10. "You're left with a gigantic salary gap between the middle and the top," observes Sheridan Tatsuno, a principal at NeoConcepts in Fremont, Calif., a marketer of Japanese technology assessment.

"Managers won't put up with a 20-to-1 or more pay differential, and we're already seeing an exodus from Silicon Valley firms such as Apple Computer Inc.," Tatsuno says. "The best people walk away, and companies are going to lose their best women and minorities because of this issue." The High Price of Low Morale

"To me, it's a motivational issue," says Ed Lawler, director of the Center for Effective Organizations at the University of Southern California's School of Business Administration. "We'll soon lose our ability to effectively lead our troops." Executive salaries alone -- without the incentives -- are going up 10 percent per year, while "everyone else is lucky to get 5 percent," Lawler notes.

The effect on productivity is also devastating, say experts. "The overall cost of the demoralization brought about by this issue runs into the hundreds of billions," asserts Neo-Concepts' Tatsuno. 'This pay {standard} says, 'You're not worth very much at the bottom.' " {See box.}

The pay issue is "a terribly important problem in a global economy where our own productivity is so severely marred," says Donald Kanter, professor of marketing at Boston University and coauthor of "The Cynical Americans." In much the same way that companies' environmental awareness has become a criterion for consumer purchases, Kanter predicts, people will increasingly buy a particular product based on whether they believe the manufacturer's workforce is happy. For example, he says, the 1982 and 1984 flaps over GM's executives taking millions in bonuses for themselves after winning billions in union concessions "persuaded many people never to buy a GM car again. They saw a company whose workers were so ticked off that they were going to produce lousy cars."

Kanter and several corporate managers also predict rising unionization because of the pay issue. Executive pay "has led to a higher degree of cynicism among union members" than ever before, says Howard Samuel, president of the Industrial Union Dept. (AFL-CIO), which represents 4.5 million members.

Despite evidence that pay is a contributor to competitiveness problems, the majority of American CEOs either ignore the issue or react defensively. For example, a new committee has been convened by the National Academy of Engineering and the National Academy of Sciences to assess public and private policies affecting U.S. manufacturing performance. But the corporate leaders on the panel -- all from large companies -- don't consider executive pay "a major determinate of corporate performance," says Christopher Hill, the panel director.

Edward A. Miller, president of the National Center for Manufacturing Sciences in Ann Arbor, Mich. -- a consortium of 90 corporations committed to making U.S. manufacturing competitive -- says that our "trading partners have an advantage over us because they link both employee incentives and capital investments to long-term goals." For example, Japanese executives are rewarded for company growth over decades, "owning major chunks of stock and taking multi-million or even billion-dollar earnings at the end of their careers. I have absolutely no problem with those kinds of big long-term rewards. I do have a problem with short-term cash bonuses" reaped by U.S. executives, Miller says.

However, he adds, compensation rewards can't be linked to long-term corporate interests "without changing our entire tax and Wall Street systems that are predicated on quarter-to-quarter earnings. We need to tax short-term capital gains very high -- as high as 100 percent -- and after 10 years have a low tax."

Many managers, however, believe that executives will not do anything to change the current system -- in part because they blame their workers, not themselves, for competitiveness problems. "Many industries are hurting for people because {executives} think the way to beat Japan is to work people hard so we won't need as many," observes Eaton's Burtt.

There's evidence, however, that shareholders are finally going to take some action. "It's an issue just coming of age," observes Richard Koppes, general counsel of the California Public Retirement System, the largest public fund in the country with assets of $57 billion and more than 470,000 institutional investor members. "You'll see more attention to this in next year's proxy season," he promises.

For the "first time, institutional investors are standing up and fighting," says Graef Crystal, a professor at the University of California, Berkeley, and a leading compensation expert. In the distant future it's even conceivable that shareholders could get the right to vote on executive pay. "Shareholder democracy" took a big step forward this year. In a major change in policy, the Securities and Exchange Commission rejected efforts by management to keep shareholders from voting on proposals opposing "golden parachute" executive severance plans. The rulings came after shareholders at Transamerica Corp. and Wendy's International Inc. fought lavish golden parachutes that were adopted unilaterally by management without a shareholder vote. As a result, the SEC has agreed for the first time that shareholders have a voice in areas where management has a clear conflict of interest.

Boards of directors often rationalize huge salaries on the grounds that they need to attract and retain top executive talent. Yet most CEOs "would work for a lot less," says Carla O'Dell, a productivity expert and adviser to the American Productivity & Quality Center in Houston. "They love what they do, and the psychic rewards are enormous." One recent study shows that monetary factors are only fourth on the list of why executives change positions. Executives themselves cite personal challenge, importance of the job and career advancement as more important than salary in their decisions to change jobs. Closing the Pay-Scale Credibility Gap

If the private sector doesn't take action regarding salaries, the government may. Japan's assertion in a report this spring the U.S. executives are overpaid, making U.S. firms less competitive, was the object of some heated discussion during U.S.-Japan trade negotiations. Tokyo proposed that bonuses be paid out of after-tax profits so that they would no longer count as tax-deductible business expenses.

The federal government, some contend, could also raise taxes on executive pay to a maximum 91 percent -- as it was prior to 1964 -- on incomes above $400,000. In 1990 dollars, such a tax would be applied to any pay exceeding $1.7 million. "There's some evidence that these two measures would work to some degree, but there are always firms willing to flout them," says Berkeley's Crystal.

Only one American in three thinks corporate executives have "excellent or good" ethical and moral practices, putting executives on a par with politicians and stock brokers, reports Opinion Research Corp.

To improve their credibility, executives themselves need to take steps, such as enacting a pay cap, says Jim Kouzes, president of Tom Peters Group Learning Systems, Palo Alto, Calif. A "major reason for the huge drop in credibility is the obscene gap between frontline-worker and executive pay," says Kouzes. "At a time when we need more than ever to increase our competitiveness, we are more cynical than ever and less willing to participate."

Moving toward a Japanese-style "teamwork" system of holding each person more accountable for the company's success and failures -- rather than just executives -- and rewarding everyone according to his or her performance would go a long way toward rebuilding employees' belief in corporate equity.

However, "pay-for-performance" must be just that. In too many firms "it's allocated based on management rank and salary, and there's nothing left for the people who actually do the work," says EDS' Hutton. "We need to turn the pyramid upside down. There's nothing wrong with someone on the front line making more than managers in the back offices."

Most managers believe that top-performing executives deserve to earn a lot. But they believe, as Russ Wight, a general partner in Interstate Properties of Teaneck, N.J., puts it, that they must earn their pay "along with improving working conditions, employing more people and increasing value to shareholders." Unfortunately, most studies have shown that executive compensation is generally not correlated to executive performance.

Increasingly, directors "won't just ratify large base-pay increases and bonuses when there's poor performance, and pay for all levels of employees will be more at risk," predicts Jerry Jasinowski, president of the National Association of Manufacturers.

What the nation needs, says BU's Kanter, is "sensible management that says there will be no more special privilege for the few" and that distributes profit sharing and stock options on an equitable basis. "It isn't that the poor hate the rich. It's that the poor hate having to be poor. Opportunity is what everyone's fighting for."

Joani Nelson-Horchler is an associate editor of Industry Week, from which this article is excerpted. Copyright 1990 Penton Publishing Inc.