Politics, Technology, and Language

If thought corrupts language, language can also corrupt thought — George Orwell

CEO v. worker pay

Posted by metaphorical on 24 February 2007

To put the CEO-worker pay gap in perspective, we calculated how much average production worker pay would be worth today if it had grown at the same rate as CEO pay. In 2005, the average worker would have made $108,138, compared to the actual average of $28,314. Similarly, if the federal minimum wage had grown at the same rate as CEO pay, it would have been $22.61 in 2005, instead of $5.15.

change-smaller.jpg

I’m still thinking about the remark I went off on earlier in the week, “I frankly don’t give a damn about the family living on $15K – or $50K – a year.”

The Institute for Policy Studies and United for a Fair Economy’s report, “Executive Excess 2006: Defense and Oil Executives Cash in on Conflict,” was their 13th annual compensation survey of CEO pay. They looked at “total executive compensation,” which includes “salary, bonuses, restricted stock awarded, payouts on other long-term incentives, and the value of options exercised in a given year; we do not include the estimated value of stock options awarded.”

In 2005, the average total compensation for CEOs of 350 leading U.S. corporations was $11.6 million, down slightly from $11.8 million in 2004. The ratio of CEO pay to average worker pay was 411-to-1 in 2005.

The multiple of the average worker salary has been higher—as high as 525 at the height of the dot-com bubble—and, even fairly recently, much lower—142 at the depths of the post-Reagan/Bush recession in the early 1990s.

But still the overall trend is up, up, and obscenely further up. In 1980, the multiple was a mere 42.

Even using 1990 as a baseline, over the past 16 years CEO pay as come to vastly exceed average corporate profits. If CEO’s were compensated only insofar as their companies made money, it would be hardly more than a third of what it is. While corporate profits are double what they were in 1990, CEO pay has quadrupled. Meanwhile, average worker pay—despite enormous gains in worker productivity—have hardly risen at all (4.3%) and the minimum wage earner—before the upcoming increase—is actually making less money than in 1990.

It’s not just workers at the low end who are making just a miniscule fraction of their company’s CEO. In 2005, Lee Raymond, the outgoing CEO of ExxonMobil, made $69.7 million. According to the Bureau of Labor Statistics, the average petroleum engineer makes $107,990 – that’s about 0.15% of Raymond’s salary, which, by the way, was only the third highest in the industry. If R. doesn’t give a damn about the least of us, maybe the fate of a high-trained professional petroleum engineer hits a bit closer to home.

The cult of private property says CEOs should make whatever they can get and the market will make sure it’s right. Do CEOs perform any better today than then did in 1980 or 1990? The evidence is they do not. The evidence is their salaries are way out of line with their achievements. The twin effects of cronyism and autocracy seem to be distorting executive pay.

One obvious theory is that the market had been tacitly relying on a certain amount of CEO decency and self-restraint; when the pillaging of corporations from the inside came into fashion in the Reagan administration, the market’s mechanisms for racheting CEO pay back down couldn’t match CEO greed.

I’m not an economist; I can’t say whether that’s true. But I can say it’s wrong for Lee Raymond to make 645 times what his petroleum engineers make and thousands of times more what his lowest-waged employees get. If Raymond can’t restrain himself, and his board can’t, and the stock market can’t, maybe tax policy or some other regulation should.

It’s obvious that CEOs don’t give a damn about their workers, why should we give a damn about their extreme property rights? One obvious response is “When they came for the CEOs, I did not speak out; I was not a CEO.” But surely we can structure a law that reins in the worst excesses and leaves ordinary levels of greed alone. CEO is a job title, not a lottery ticket.

[Added: More on overlarge salaries here]

15 Responses to “CEO v. worker pay”

  1. tigtog said

    Thanks for that perfect concluding sentence. CEO greed is one of my hot buttons, and … I just tried to write something coherent and just couldn’t. I’m too enraged.

  2. […] CEO v. worker pay […]

  3. The Atlantic had a good take on CEO salaries several months ago.

    One of the standard defenses of CEO salaries is that sports/movie/entertainment stars get astronomical salaries too and that hasn’t hurt the sports/movie/entertainment companies any and explains much of their success, so superstar CEO have the same kind of effect on their companies.

    The Atlantic stomped all over that argument noting the many ways that astronomical CEO salaries distort the market.

    I didn’t turn up the original article in a quick surf through the The Atlantic’s web site. I’ll have to find it when I get home and look in the dead tree version.

  4. Da, tovarisch! Soon vee vill take zee palace!

  5. There’s probably a sense that sports and movie entertainment track much better with revenue than it does for CEOs. There’s obviously a lag, so a Jim Carrey or Tom Cruise has to have a couple of duds before their compensation gets readjusted downward, but CEO payouts don’t track at all with company performance, as the chart shows.

    I’d be interested in what the Atlantic article had to say.

  6. These are fascinating numbers and statistics…is there any historical corralary? The gap between the rich and the poor…in other eras and countries…when it has become this grotesque…are there any stats and records of what typically happens? How are balances restored?

  7. […] Product of Capitalism 27Feb07 There is an excellent post over at Metaphorical about the differential that exists between CEO and worker pay, which is one of […]

  8. […] CEO v. worker pay […]

  9. Well, after pawing through the back issues, here it is:

    “The Height of Inequality” by Clive Crook, The Atlantic, September 2006

    It’s on their web site too, but I think you’ve got to be a member, anywoo here it is.

    It’s not so much a takedown on CEO salaries as the general income gap in the US. The general argument is this

    Productivity growth has always been seen as perhaps the single most important indicator of rising, broad-based prosperity. But remarkable growth in top-end pay, together with the relative constancy of labor’s overall share of income, has an obvious implication: the highest earners are now capturing most of the gain in national income caused by economy-wide productivity growth.

    The rich are getting richer arguments are nothing new but what I found disturbing was the apparent breakdown between general breakdown of the link between general productivity gains in the economy and rising incomes. It appears that the rich get richer not because they save and invest more but because they get paid more.

  10. Andrew, thanks for digging that up. (Yes, only the first two paragraphs are available to non-subscribers.) It’s remarkable the extent to which companies don’t share productivity gains in the form or higher salaries. There are surely a lot of causes, but after the greed of the executives, the most problematic is the absurdly heavy pressure by shareholders for higher dividends.

  11. […] off 3,400 of their most experienced salesclerks.” But instead of providing fodder for another rant about the enormous and still-growing disparity between CEO and worker pay, Carr goes after the […]

  12. Allen said

    There’s a wicked commentary about CEO compensation at:

    http://cantankerousconsultant.blogspot.com/2007/04/save-salary-movement-begun-by-corporate.html

  13. (Reuters) — Occidental Petroleum’s chairman and chief executive took in more than $400 million in compensation last year, the company said in a filing, one of the biggest single-year payouts in U.S. corporate history.

    In 2004 there were 73.9 million workers earning the minimum wage. $400 million would have given them a $5.40 annual raise. That doesn’t sound like much, but it’s $5.40 more than they actually got that year. Or 2005. Or 2003. Or 2002….

  14. 1of-the-people said

    AHHH!!!

    these facts are making me grit my teeth and clintch my fist. why do we allow such inequality? dont we see that together we’re more powerful than these greedy men could ever be? this is capitalism gone bad.

  15. That’s the $64,000 question. Why does the voting public so frequently vote against its economic interests?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

 
Follow

Get every new post delivered to your Inbox.

%d bloggers like this: