How to Get Rich in America

Which is today's likeliest path to true financial security for you and your family?

So you want to make money? That was the question Fortune magazine put to the graduating class of 1953 nearly 40 years ago. That was back when men were men, women took dictation, and investment banking had yet to become a blood sport.

That Fortune story, a college-commencement address of sorts, identified two conventional paths to wealth: either you join a large company and claw your way up, or you start your own company. You work for yourself or for somebody else.

We decided to fast-forward 40 years and offer that same conundrum to the class of '93. Soon you'll be hitting the streets, faced with putting beans on the table and, someday, braces on the kids. Add a few zeros for those nettlesome necessities like housing and education, and before you know it you're doomed to working for a living.

So how do you get rich in America, and how do you do it fast enough to enjoy the fruits of your labor? How do you make enough money, as Fortune phrased it, "to permit you to spend it as you will without counting the cost too closely -- assuming always that your latent profligacy is tempered by a civilized sense of proportion?"

Getting rich has never been easy. While the latest Internal Revenue Service data show that the number of millionaires rose from 475,000 to 941,000 between 1982 and 1986, 1989 census data reveal that 0.5% of American households held 29% of the nation's wealth. Moreover, only 3% of U.S. households had net worths exceeding $500,000, and that included equity in real estate, likely eroding as you read this. And consider further that only 5% of U.S. households enjoyed incomes of more than $100,000. Raising a family on that sum in any big city puts you squarely, depressingly, in the middle class.

For the ease of argument, assume you lack Magic's magic or Madonna's moxie. Eliminate also the handful of professionals -- the doctors, the lawyers, the traders, and the passel of paper entrepreneurs -- who made out so handsomely in the 1980s. That returns us, more or less, to the hard choice Fortune presented 40 years ago. You can enter a large corporation and rise to the top, or you can start your own company, hoping the venture yields riches proportionate to the risk.

Given that choice, which one is "better" in 1993? Which fork in the road is the one you should travel down?

The large American corporation of 1953 resembled the modern-day Japanese corporation, which exchanges a lifetime of security for a lifetime of service. Fortune, in its 1953 article, depicted the structure of the large U.S. corporation as a "truncated" pyramid crowned by an "obelisk" comprising a handful of well-compensated senior executives. The magazine noted that in 1952 General Motors "distributed $59 million in bonuses to 12,057 executives. Sixty-six officers and directors averaged nearly $122,000 each, over and above their salaries, and the lesser executives averaged $4,250 (all paid over five years)."

Though that was good money, given that a 1953 dollar had five times the buying power of today's, Fortune quickly noted the long odds involved. "Thus the big money at General Motors is perhaps bigger than elsewhere. . . . But the ratio of executives on the top policy level to total employment (469,000) is normal -- about 500, or 0.1 percent. And the percentage of GM executives in the really big money is no higher than elsewhere. In brief, not only are your chances of getting into the big-money group mathematically small; you generally make nothing resembling big money, no matter whom you work for, until you enter that top group."

The magazine further stated that the members of that elite group usually took a generation or more to make it to the executive suite, citing a 1952 survey it had conducted of 900 chief executives, in which 800 were more than 50 years old. The magazine did, on the other hand, cite a handful of "sensational successes," such as the head of GM's Buick division who took a mere 19 years to reach that post.

So how does that compare with today? Is it easier to make a lot of money in a large corporation? The answer is yes and maybe. Some things have changed since 1953, and others have not.

When you adjust for inflation, the big money still goes to a relative few. According to the Hay Group, a consulting firm based in Washington, D.C., that specializes in executive compensation, only 3.3% of so-called exempt (executive, administrative, professional, and sales) employees in 129 large companies it recently surveyed made more than $100,000, and only a third of that 3.3% earned more than $150,000.

Fortune noted that at another titan of its day, the Jersey Co. (today's Exxon), only 6% of employees -- the "policy-level men" -- made more than $16,000 a year. Again, factoring in inflation, that translates into rough parity with probably half that 6%'s earning more than $100,000 in 1993 dollars.

While executive base pay has remained equivalent, what differs markedly between today and the 1950s is the amplification of risk and reward. In corporate America today it's easier to make $1 million quicker -- and it's also easier to lose your job. Note the recent dismissal of Robert Stempel, the man at the very top of the GM obelisk, forced out by his board last October. That kind of coup in the clubby world of a Fortune 500 company would have been unthinkable 40 years ago.

Stempel, 59, invested a lifetime to reach GM's top spot. Today, says the Hay Group's Ira Kay, "you can find people in large corporations who are 10 years out of business school and in their mid to late thirties with a lot of responsibility." That can translate into annual compensation of $500,000 and up. (Again, GM offers a latter-day example of how things have changed. In reshuffling management, GM's board appointed two executive vice-presidents: Richard Wagoner, just 39, as chief financial officer, and Louis Hughes, 43, as head of international operations.)

In today's typical Fortune 500 company, a manufacturer with about $2 billion in sales and 20,000 employees, there might be about 2,000 white-collar jobs, says Kay. Top executives fill 10 positions and earn $500,000 or more. Another 40 are senior executives "earning well over $100,000 a year." The next level down, "upper middle management," numbers about 70, with salaries ranging from $80,000 to $120,000. Those are all "big money" positions for one key reason: they offer the chance to own company stock.