CEO Pay and The Average Worker

The average worker earns less than the average CEO; we get it. The ratio of CEO pay to average worker pay is in the 300:1 range, but only among Fortune 500 companies, the largest of companies and many international organizations. That is not true for all CEOs of US companies. The great majority of Americans do not work for a Fortune 500 company.

What real purpose is there in requiring companies to calculate and disclose this very misleading ratio which, by the way, can be unfavorably distorted by a company hiring lower-wage workers here and abroad; a hiring move that would be good for many people. What do we gain for average workers if, in the unlikely event, CEO pay is lowered?

Would average workers welcome a raise if their total compensation was 12% salary, 35% total cash including possible bonus and the rest in stock or options to buy stock subject to the fluctuations of the stock market as it is for CEOs?

What we are saying is that up to 500 Americans are overpaid, some paid more than they are worth, some outrageously paid … so what?  What will cutting their pay get you…revenge? If you think that to close the pay gap companies will grant massive pay increases to average workers, you must be part of the naive left. You probably also believed the rhetoric that health insurance company CEO pay had a major impact on premiums.

I wonder what the ratio is between the pay of a movie star and the average workers on the set or the ratio between the star player on a team and the average pay of the ground crew or the college president and the janitor or the major college football coach and the equipment manager? Give me a break.

It’s not as if the CEO pay is a secret. It is displayed in great detail each year in a public company’s proxy. Any worker (or shareholder) interested can easily add it up and compare it with his or her pay.

So, what is the purpose of this required disclosure? Good question😎. What is the purpose of zeroing in on CEO pay?

It seems the main purpose is to stoke the populist rhetoric on inequality. The 300:1 ratio is being misused and is misleading.  Imagine what the far left will do to individual companies. Susceptible Americans will eat this up as proof of … of …. of, I know, life is unfair and I don’t make enough money. 😂

Here is a hint (and a good example of the naive left at work … again):

Sarah Anderson, global economy project director at the Institute for Policy Studies, a left-leaning organization in Washington.

“It makes a lot of sense to bring the C.E.O. pay ratio out of the shareholder realm and into the consumer’s,” Ms. Anderson said. “There’s also interest at the state level to take this indicator of C.E.O.-to-worker pay and incorporate it into tax policy and procurement policy.”

She cited a 2014 bill proposed in the California Senate that would have raised the state’s corporate income tax to 13 percent from 8.84 percent for companies that pay their top executives over 400 times the median pay of their workers. That bill also would have lowered the tax rate to 7 percent on companies with a top-executive-to-worker pay divide of less than 25 to one.

The bill did not pass with the two-thirds majority it needed, but one of its co-sponsors is working to move it forward, Ms. Anderson said.

 In January, five Rhode Island senators introduced a bill setting preferences for how state contracts are awarded, giving a leg up to businesses that have relatively low pay ratios of 25 to one.

A companion bill may be introduced in the Rhode Island House of Representatives in the next session.

It’s possible, too, that some consumers, disturbed by the disparity between a corporate chief’s pay and that of lower-level workers, will change their shopping habits to favor companies whose pay is fairer. If institutional investors won’t vote with their feet on this matter, perhaps consumers will.

“Everybody is outraged about C.E.O. pay, but people feel they can’t do anything about it,” Ms. Anderson said. “What I’m hoping is that this will give people something to do about it that’s concrete.

“Everyone is outraged,” really, everyone? Will you as a consumer shop in a different store because you don’t like the CEO’s pay?  I’m outraged that Judge Judy makes $20,000,000 a year and Vanna White $10,000,000, should I avoid Wheel of Fortune or not buy the advertiser’s products?

Anderson cites some brilliant thinking in the states; penalize a company to the detriment of all employees, shareholders and consumers because you think one person’s pay is too high; no unintended consequences possible here, yeah, right‼️  And what states to cite, California (enough said) and Rhode Island that like so many states can’t even manage its own pension funds.

We are besieged by inflammatory rhetoric and misinformation from all sides and by many with a hidden agenda. It pays to look deeper into claims made by anyone and to determine the purpose behind the information they discriminate.  At least that’s my opinion. 

Get a grip folks, you are being used and manipulated once again. A lot of people are overpaid for the value they add … and it’s not limited to CEOs.

It’s tempt­ing to view Wednesday’s vote by the Se­cu­ri­ties and Ex­change Com­mis­sion as merely a rude hand ges­ture di­rected at the man­age­ment of pub­licly traded com­pa­nies. The SEC ap­proved, on an­other 3-2 vote with both Re­pub­li­cans dis­sent­ing, a re­quire­ment that pub­lic com­pa­nies cal­cu­late and dis­close the ra­tio of the CEO’s pay to that of the me­dian worker. The new rule will cheer unions and progres­sives ea­ger to use it as a po­lit­i­cal stick against Amer­i­can business 🔹🔹🔹

The AFL-CIO and Naderite groups like Pub­lic Cit­i­zen make clear they view this as a tool to pres­sure man­agement. So a CEO can ex­pect more ridicule if a de­ci­sion to add low-skill em­ploy­ees results in a higher ra­tio. At the mar­gin there will thus be a strong pub­lic re­la­tions incentive not to lo­cate op­er­a­tions in low-cost states or low-wage coun­tries. This is what unions want, but it’s not going to help peo­ple who are des­per­ate to join the workforce and will­ing to ac­cept low pay to ac­quire the ex­pe­rience to rise up the eco­nomic lad­der.
WSJ 8-6-15