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.
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]