>> Rick, i think it really depends where the company is located. Even in the list the companies like ST have lower pay than companies like Intel.
Sure - the EU firms are more tightly managed than the US counterparts. Largely, you do not need a lot of money to live in Europe since most are socialized. It is over here in America do you need so much more. You can have a big car and yet no space to park it in London. I think European firms are modestly in better shape in terms of CEO pays than US firms.
"...you do not need a lot of money to live in Europe..." who does not like an extra zero in his paycheck even though you really donot need or cannot use it. You can always put some more money for retirement or go for an early retirement.
I suspect that in the U.S., the ratio for the semiconductor industry is much lower than for other industries. Yes, U.S. semiconductor CEOs are well-compensated, but so are the rank-and-file compared to many other industries.
Very good question and truly the best one in a long-time. The answer is NO Comparsion. I get paid in dollars, my CEO is Compensated. Besides the money, his son's startup is now a supplier. I mean there is no benchmark for comparison
How is it a free society when the Government tells you how much you can earn? The way a corporation is supposed to work is that the stock-holders determine the compensation and tenure of the officers. Of course, the process has been corrupted in many ways. My preference is for Governments to attack the corruption rather than legislating everyone's pay (yes, they will start with CEOs but they will eventually get to you and I.)
I am also of the opinion that the compensation packages of the CEO's in public companies should not be legislated by any government at all. Instead, the shareholders have that right to exercise. To that end, the SEC's proposed requirement to list the ratio of CEO's vs. median salary of employees is a good idea that can provide feedbacks to any shareholder action.
The SEC would only require companies to report the executive-to-average-worker pay ratio, to provide higher visibility into pay structure within the company.
Even if it was actually trying to legislate pay ratios, this is within the bounds of government responsibility, and executive pay has been ballooning at an obscene rate. Over the past 20 years, executive pay has increased greatly, while average wages for middle income earners has been flat. It is not so much about corruption as it is about laying down a social framework that is mostly fair and mostly beneficial to everyone.
Ah, yes. Another go around of the claim that CEOs are overpaid relative to the average worker, with claims it needs to be reined in almost certain to follow.
Such notions miss a few fundamental points.
First, value is relative. Something is worth what someone else will pay for it. That includes the worker's labor. The CEO's pay is negotiated when hired by the Board of Directors. The various Boards have been willing to pay that much. By that measure, the CEOs aren't overpaid, because the Boards are willing to pay those levels of compensation. You need to look at why.
Second, while the total compensation gets a dollar value, most of the compensation isn't money. It's shares of company stock, and options to buy more shares at a lower than market price. The assumption is that a CEO will be more strongly motivated by having a piece of the action. Those are assets that add to the CEO's net worth, but they don't become money unless and until he sells some stock. Many CEO contracts have restrictions on timing and amount of stock sales because sales can affect the stock price. How many times have you seen companies announcing stock sales by the CEO, giving the reason as tax and estate planning? The concern is that the market may see stock sales by the CEO as indicating lack of confidence in the company's prospects, with a corresponding desire to reduce exposure and take profits while the stock still has a higher price.
Third, you have to examine CEO motivations.
One is parity. We all want to be paid comparably to our peers. If we discover another employee in our company who does the same thing we do, with a similar level of training, experience, and seniority, is making a lot more than we are, we'll be unhappy. CEOs have similar feelings. If the CEO of a company sees the CEO of another company of similar size in the same line business gettig a substantailly better compensation package, he may have a conversation with his board about it.
Another is ego. It's a game. Money is how you keep score. CEOs are winners. The CEO pulling down pulling down $10 million a year is announcing "I'm one of the best at what I do. I'm so good, my company pays me $10 million a year to do it for them!"
Another is status. Once you get past the basics of survival, and you are healthy, with food on your table, clothes on your back, a roof over your hard, and some confidence that will continue, you concern shifts to how you are doing relative to others. What's your status? Every society has status, though how it is conferred it and what indicates it ewill vary. In our culture, material wealth is a status indicator. The highly paid CEO has commensurate status, and wants to preserve and increase it.
Now look at the Boards that are willing to provide those compensation amounts. Why do they do so? The larger the company, the smaller the amount of candidates available who can do the job. When the CEO slot becomes vacant, the Board committee who must choose a replacement has a relatively limited pool to choose from. They'll want to pick either an internal candidatewho was perhaps a direct report to the departing CEO and viewed as a potential replacement, or if they look outside the company, they'll look at someone who already is or was a CEO elsewhere, or a candidate to be one. When you have a tight job market with few qualified, compensation skyroclets, because they are competing for the best people.
The fundamental job of the Board of Directors is to hire and fire the CEO. They are elected representatives of the shareholders who collectively own the company. Their concern is to preserve and increase shareholder value, and they hire the candidate they believe can best do that. It's ultimately about the price of the stock. If the stock takes a nosedive during the tenure of the CEO, he's not long for the job.
Ulitmately, the CEO makes far more than the average worker because the folks who approve his pay believe what he does is worth far more than the average worker. Most workers in a company can be readily replaced if they leave, and may well get laid off and replaced by someone who costs less. Replacing the CEO isn't as simple or easy. A poor worker might damage a company. A poor CEO can kill it.
One unanswered question in calls for reining in CEO pay is what those calling for it think will be done with the money instead. If the answer is "distribute it to the workers as higher pay", dream on. It won't happen, and probably wouldn't be a good idea if it did.
You can argue that the current focus on shareholder value is misplaced and even damaging to the health of the company, and folks have: http://www.forbes.com/sites/stevedenning/2011/11/28/maximizing-shareholder-value-the-dumbest-idea-in-the-world/
But as long as shareholder value is the metric by which company health is judged, what we see now will likely continue.
Of course, board members tend to be top execs from other companies, also paid way more than the average worker, so it's not surprising that they scratch each others' backs.
Still, having the CEO of a company with ~100,000 employees or more paid a few hundred time more than the average worker means that it's not so much a question of his salary affecting negatively the workers' salaries. It's more a question of basic fairness, common sense, and you know, decency. Those intangibles.
I'd deteste doing their job, so I'm not envious by any means. A life of meetings, hustling, and gladhanding, doesn't sound appealing. I just don't want to hear them pontificating at me about ethics.
Bert, I totally agree. I wouldn't want the job, but I can't complain too much about their salary. It does tend to be kind of like the government. You have the board and CEO making the rules and voting themselves raises. It is a gravy train until bad times, like when the company or country goes bankrupt. Then they have their golden parachute and the little people suffer.
There is too much disparity in the salaries in US than Europe. I think that it has to do with rules and regulation. The same rules and regulations can be applied in US and i donot agree with those distractors that say the companies will loose out with competitors. I thinks the management in Europe is on par with US at a much lower cost.
Still, having the CEO of a company with ~100,000 employees or more paid a few hundred time more than the average worker means that it's not so much a question of his salary affecting negatively the workers' salaries. It's more a question of basic fairness, common sense, and you know, decency. Those intangibles.
It seems we all agree that CEOs are overpaid and this is not fair...perhaps only some CEOs will object to that statement ;-)...but they probably don't post at EE Times...the question then becomes what can be done about this? Kris
Ratio to average salary in Switzerland is 148 and in US is 354. Data are after AFL-CIO. Group difficult to suspect of much sympathy for CEO's. Also, average pay of Swiss CEO was $7.4 mln and US CEO $12.3 . Yes, it is difference but much lower than someone may expect. I mean Swiss voters have almost the same reason as (potential) american voters, to cap CEO compensations.
Personally I don't see how (especially when implemented as rule of OECD) resonable cap of CEO salary (as multiplication of average employee salary) can negatively impact economy! Actually I think it would be positive impact. CEO would have personal interest in raising employes salaries but in same time would be responsible to shareholders and have to guarantee company growth. That is exactly what society expect from that group.
Currently main problems are lack of decency, cult of celebrities and money grab and run mentality.
There would be many ways to go around this rule (for engineering companies for example CEO can contract out all lower paid jobs) but still it should be improvement compare to current status quo.
Thank you @otta...the difference between Switzerland US is smaller than I thought...the problmem with the Swiss porposal was that it was going too far...12:1 ration is not realistic...I would be happy with 30:1 which will compress the problem in US by an order of magnitude...perhaps we coudl poll EE Times readers whah they think the fair ration is! Kris
I think the best solution is to find ways to flatten the compensation pyramid. I do not necessarily believe that CEOs are overpaid just by looking at absolute figures. What I would like to see is a reduction in the CEO to employee compensation ratio.
I do not believe in caps. If at all, its the ratio that should be capped so that no one group pulls away, or another left behind.
I agree it is easier said than done. However I do think each organisation will have to address the issue by being transparent about compensation ratios within the company. This responsibility could lie within the HR unit.
HR listens to CEO...nothing will get done, I guarantee it...there are very few CEOs that wants to make less money...and if you have characetristics like this in you that probably disqualifies you as CEO ;-)
@krisi. I am not advocating for a reduction in CEO pay - in fact, I am against it as I mentioned earlier. Maybe the phrase "flatten the pyramid" is a bit misleading. What I indeed meant is, pushing up the base of the pyramid, creating some compensation traction that prevents a segment of the pyramid from breaking away and leaving the rest behind.
And a CEO that controls the HR in order to gain advantage at the expense of the rest of the company is not fit to be a CEO either.
It should be said to such a CEO - what's happened to your preachings about 360 feedback, what's happened to your mantra about the virtues of good leadership? ...
If you want to make more money, then you shall do it carrying the rest of the company along ...
>>there are very few CEOs that wants to make less money...and if you have characetristics like this in you that probably disqualifies you as CEO ;-)<<
I agree with that. Some of the smartest, efficient people I know who always had the good of the company in mind never made it past middle management. It's similar to politics, I think, the people you really want in office will never run.
DMcCunney said, "Something is worth what someone else will pay for it. That includes the worker's labor."
Yes but (for example) in the electronics industry, companies that belong to certain trade groups (used to be American Electronics Association, not sure who right now) are asked to report regularly (again, it used to be weekly) to others in their general area what they're paying for each "standard category" of worker, and the purpose of this is specifically to prevent the "social embarrassment" to the CEO of the "horrid disease" of worker wage inflation (yeah I'm having a little fun with the words here). On the other hand the cross-pollination of boards of directors is set up to deliberately PREVENT such comparisons from having any meaningful effect (see "interlocking boards" in your civics text, it's been going on for way more than a century now). So for the worker the standard for setting compensation makes it HARDER to improve pay than a "free market", for the CEO it becomes EASIER. And you're telling us the systems are in balance? Don't think so!
I would rather see this question tackled in the context of Corporate Social Responsibility where organizations voluntarily publish key metrics. Examples could be the mode, median and mean salary of all employees with respect to that of the CEO (and executive team) but I'm sure there are probably other metrics too; or someone could even come up with an index that somehow munges all these metrics into a single figure that over time, would have some meaning.
@Dr. Marty: good comments... CSR with executive compensation would be a good idea but it is at odds with the financial goals of a company. Public companies' first goal is satisfy the shareholder expectations BUT if you make that dependent on satisfying more groups including the society at large, then one could hope for meaningful change. How ever, governments should not legislate CSR, instead promote that as a substitute to restrictive legislations! Looks like 'voluntary' CSR will be the status quo for a while!
A lot of good points here from all sides. Yes, a good CEO is worth a lot, but how much is a lot? and what is wrong with offering the workers stock options at the same rate per $ paid? and if the company goes belly up, aren't the workers entitled to the same golden parachute protection that the CEO is (again proportional to their pay?)
I like Dr Marty's idea of voluntary reporting of metrics, but to overcome the greed of these guys I think a bit more stick is necessary. Ratios between lowest / highest pay are a good idea and simple to implement. As are enforcing CEO pay rises be no more than the workers get. I recently got 2.5%, around the inflation figure so does not mean much, after a long fight, with the union threatening industrial action. Our CEO got 25% with no such struggle. "How to demoralise your workforce: 101".
Ad D. McCunney says, it would be meaningless to distribute the CEO's excess to the workers. But by mandating that all workers get the same stock options as the CEO, and putting that money towards the dividends, everyone has an incentive to do their best. Carrots alone don't work with greedy CEO's, some stick is needed.
I would be proud to second it! Reminds me of the bygone Sprint commercial where the firefighters are expediently resolving a city hall issue on clean drinking water. If things were left to us engineers, we tend to get to the heart of the problem right away and find a solution!
I don't know how much faith we can really put in CSR, given that companies openly speak of the bottom line as everything to them. There is a responsibility but not when it comes into conflict witht he corporate bottom line. Anyway, you raise an interesting question by pointing out that engineeers often, when left alone, get to the heart of the matter. How eactly would engineeers deal with this problem? Would they force CEOs to take a pay cut or cap future CEO salaries? Would they allow the current system to run as it is in spite of what some say are issues of common sense, fairness, and decency? Obviously, some would be in one camp, some in the other--but about how many on the average? Maybe we should take a poll somewhere of engineers asking them how they would deal with the disparity in CEO to average worker pay or if they would deal with it at all.
Seriously though, the problem seems to me to be responsibility. Everyone has rights - CEOs have rights to huge salaries, stock options, golden parachutes. But the only responsibilities they have seem to be to the shareholders and boards who give them all the above. As for responsibilities for the welfare and lives of their workers and staff - forget it.
If managers, politicians, etc will not take ownership of their responsibilities, ethical or otherwise, the only thing to do is legislate them, so they HAVE to.
FYI it is just as big a problem in AUstralia as it seems to be in the States.
You raised a good point on CEO's/Boards serving the interests of primarily the shareholders while neglecting those of the employees. Perhaps change for the better will come when responsibilities to employees are met and extend to that of the society in general!
It seems to me that CEOs do have a certain amount of responsibility to the general public and to their workers to, for example, make sure they are not contriuting to environmental decline or endangering the public. That kind of corporate social responsibility is different from the need to make sure that others are compensated for their work and that there is parity of some kind between what CEOs make and what everyone else makes. Still, there is a kind of precedent there that says CEOs don't just do whatever they want just as their companies don't do whatever they want regardless of other peoplles' interests.
"Why is it assumed that the interests of a company's shareholders and those of its employees are mutually exclusive?"
Because they often are.
Shareholders want quick returns. Employees want a stable work environment. Quick returns for shareholders often translates to short-term strategic thinking at the top, e.g. divesting the company of R&D costs to help improve the bottom line next year.
The guys who come up with these great schemes protect themselves from the fallouts, in ways their employees often cannot.
"'Often does not mean 'always' or even 'most of the time.'"
Often means, in this context, that a CEO primarily obsessing over the stock value is only secondarily, if at all, concerned about the employees. As a matter of fact, depending how long this person plans to remain CEO, he may not even be concerrned about making sound long-range strategic decisions. Just do what it takes to bring the stock price as high as possible, in the near to middle term, then retire and quick sell the stock.
US auto companies were a good example of this sort of short-term thinking, starting in the 1970s and on into the 1990s. It bordered on comical, were it not for the negative effects on the US economy. It wasn't JUST the unions.
The company I used to work for had a CEO who told us that his "primary concern was the shareholder." Soon after which, he sold off our division. Some 18 years later, our division is still doing great, as part of the company that bought it. Point being, keeping a profitable division going was not the original CEO's concern. Stock value was.
It matters what a person's objectives are. I feel no compulsive need to make excuses for people who are ludicrously overcompensated. That includes CEOs of large corporations, Hollywood stars, or star pro "athletes."
Depending what "doing well" means, all you're saying is that keeping the stock value high is good business for the shareholder. I also benefit from that strategy, when it comes to my 401K and other plans, but that doesn't mean this strategy works well for the companies' employees.
Companies that were once the envy of the world, as innovative technology powerhouses, have a strange way of becoming shadows of their former selves. HP is in the news these days, but surely you can think of many others. I can.
Here's a simple example of CEO thinking. There's a rule of thumb that says, if you aren't #1 or #2 in a particular field, get out of that business. The objective is not to stay in and strive to become the #1 or #2, but divest yourself of that work, employees and all. I'm not saying that this isn't a good strategy for share value, it may well be, but I find it impossible to be pollyanish about what this means to the employees. Which is what is being discussed here.
One problem with the concept of "responsible to the shareholders" (owners of the company), is as Bert suggests, many of those shareholders are looking for quick returns and may in fact be shareholders only for a very short time. As an "owners," that type of shareholder has little regard for the company's health or future plans, and his behavior more closely resembles that of a gambler. Executive responsibility must -- and therefore usually does -- extend beyond the stock price movement this week or this quarter.
Basically if most of the people are working (hard) and over the years a higher and higher percentage of the total wealth of the nation ends up to be possessed by fewer and fewer people then something is wrong, isn't it ? I wouldn't point a finger at somebody particular. It's not an evil club of old men, it's just the "system" itself which makes that happen. Unfortunately the consequences are very unpleasant.
This could be THE big political challenge of the next several decades, starting with getting support and recognition of the need for reasonable reform of the existing system, since there's no "natural representation" of the middle class (although clearly the Tea Party is far from hostile to them). According to the "political elites" if you're a moderate on the left, the union system is supposed to "provide all the answers to your problems" and if you're not a union member then you're PART of the problem! If you're further to the left then you're an advocate of class warfare and income redistribution and the only possible "reform" to capitalism that's acceptable is to tear it up and start over. If you're a moderate on the right it's almost "politically incorrect" to even bring up the topic that the system is less than fair, if you're further to the right then "reform of the system" probably consists mostly of an agenda to get rid of unions altogether and to radically shrink government regardless of the consequences. And of course it's not at all helpful that the left represents the Tea Party as a social club of racist, homophobic, gun-loving redneck "haters"!
The closest that the political consultants have come to identifying the middle class as a constituency is probably "soccer moms" and that's clearly more than a little off the mark. And economists have for decades considered the measurement of economic "efficiency" nearly as important as profit itself, and historically that was OK because there were always new jobs coming to replace the ones that were lost. They never want to discuss economist David Ricardo's finding that "labor arbitrage" (which we see all the time in the form of offshoring, outsourcing and bringing in immigrants on visas and paying them very low wages) is such a fundamental disturbance to the economic system that it renders most economic models essentially worthless. Yes it's going to be a very long time before any kind of meaningful economic "equlibrium" is established, whether it's imposed by some sort of government decree or by the market itself.
Postscript: It seems there is starting to be some general interest in the topic of artificially low wages among tech workers, see http://www.cnbc.com/id/101312871 in which an analyst actually downgrades Apple and Amazon on "moral and ethical grounds".
Anon, I too was laughing at the first line. More like: "yea right!". I am very happy to have a job and do wonder about the cost effectiveness of higher CEO saleries. It seems that if they trimmed a few million off then the company could hire a few people to get the job(s) done, better or faster or safer or with less stress on the employees. That said, running a large corporation takes a certain set of skills, both personal and technical not everyone can do it well. I would love to try though....!
I think that if the saleries were capped then all it would accomplish is either lower quality management (flight to privately owned companies) or better bottom line for the company. No where did it say that capping the exec's pay increased the workers compensation or improved the workplace. I do wonder what are we trying to accomplish with the cap: fairness? equality? vindictiviness? Not sure that any of those would be accomplished. I am still a fan of the free market and expect in the long run (not short term or in all cases) things even out.
CEO pay is high all over the world. This inspires me more than anything they write in company documents. When one may can make $7m and in the same month 200 are fired to cut cost, it tells me that only in politics is man = one vote. In business, it is not that simple.
Just as a comparison, how about thinking of some CEO's dear to our hearts - Bill Hewlett and Dave Packard. They built one of the most successful technology companies we have known.
I couldn't find much about their pay or "Compensation" but there have been plenty of ex-HP employees posted in these pages before now. Does anyone know if Bill and Dave got these obscene salaries? I think the answer will be no, they were rich, deservedly so, but not obscenely so. And they built their business on employing smart people, treating them well, and paying them what they were worth......and not milking the company like more recent HP CEOs did.......or am I dreaming?
I think there is a clear difference between leaders and followers. Those who actually build the company from scratch did not require much salaries because salaries are for employees and not for employers. They had enought shares or stocks to keep them satisfied.
Not quite on track but over on the article about HP laying off 5000 employees, I found this. Apologies Paul.C, I have no way of contacting you so hope you don't mind me quoting you:
Re: HP Lays Off 5.000 More Employees paul.c 1/1/2014 2:30:58 PM
I worked for HP during the 50th anniversary. Bill and Dave were retired but the company was still run the "Bill and Dave way". Management was proud that no one, not one single employee, had ever been laid off in the history of the company.
Obviously the CEO's since then didn't read the "HP Way" or figured they knew better than the founders. What a shame.
Bit of a contrast to todays managers who can't wait to lay workers off - it helps the stock price....
Not sure why the quote won't cover the whole column width - apologies...
Look at that graph. The primary increase is in assets. Because of the Fed's QE purchases we've seen an increase in the value of assets. And by assets I mean stocks, bonds, etc: the owning of the means of production. Karl Marx wanted the government to own the means of production. The modern leftist wants to sell off the means of production and spend the money on something else. That's just stupid. You can't eat the seed corn.
Yes we have a growing inequality in the ownership of assets. We should have a more distibuted capitalist system. You can have a greater share of the wealth but you can't spend the money. You can use it to add stability and security to peoples lives through greater participation in 401Ks and healthcare saving accounts.
When you look at money that actually gets spent and not invested, you are looking at consumption inequality. Is our economic system, primarily producing goods and services for the rich or is there a reasonably fair distibution of goods and services? I don't see any evidence of a problem here.
Liberalism at its best sees itself as a partner with the free market system; providing regulation to keep the system fair, education and training so people can get jobs and achieve their potential and a safety net to protect people from the temporary down turns and disasters of life.
At its worst, liberalism believes there is something fundementally flawed with capitalism that requires the redistribution of wealth through universal, mandatory, cradle to grave government programs that makes us all wards of the state. These programs don't lift people out of poverty. They entomb them in it. The only cure for poverty is a good job.
It's this latter type of liberalism that has taken over the Democratic party and is the agenda of this wealth inequality crap that this article is supporting.
Hi Wnderer....gotta take issue with your comment ".....the agenda of this wealth inequality crap...." The wealth inequality is not crap, it's a fact, but I actually think we are on the same page here. The current agenda is crap, I will agree.
> "Yes we have a growing inequality in the ownership of assets"
Which allowing employees to have share options and bonuses at the same rate as the CEO would go some way towards solving.
> "the redistribution of wealth through universal, mandatory, cradle to grave government programs....These programs don't lift people out of poverty. They entomb them in it. "
I totally agree. You don't give a man a fish. you teach him to fish. If a company is dong well and ALL the employees AND the CEO and shareholders do well out of it, no one can complain, can they? But greedy CEOs who exhibit no responsibility towards the employees don't solve this problem.
The way we are doing things is wrong, I think we agree, but you won't change it with carrots, some stick is necessary.
Hi Dave, What I mean by 'wealth inequality crap' is that the left is abusing the publics misconceptions about money in order to advance a raise taxes and expand government agenda. This misconception is the belief that you can take the monetary value of things on paper and shift them around on a macro-economic scale. The wealth of the 1% is the ownership of the corporations, businesses, the places we go to work that produce the goods and services we use. You can't sell that off and distribute it to the masses. The left is promoting this idea that we can take money from the rich and give it to the poor to spend, when the reason there is wealth inequality is that we are spending too much and saving too little.
Look, it's like that idea that a $100,000 car is wasteful and that the money should be used to help the poor. If you sell the car, the value of the car stays with the car. You don't get any money for it if you blow up the car. The same thing with the CEOs stock options. You can't just take the monetary value of the stock. Somebody has got to own the stock. Now if this wealth inequality stuff was about increasing savings and having more people own stock, I'd be on board.
@Wnderer.....we ARE on the same page. Although I don't hold with huge CEO salaries I don't for one minute think you should distribute it to the workers - it would amount to a few hundred dollars each at most. But there has to be a fairer way of doing things.
"Although I don't hold with huge CEO salaries I don't for one minute think you should distribute it to the workers - it would amount to a few hundred dollars each at most. But there has to be a fairer way of doing things."
I can agree with much of what you say of course. But I take issue with some points, if you don't mind.
"These programs don't lift people out of poverty. They entomb them in it."
Can you give some examples and data? You paint a broad brush there with "cradle to grave" government programs, but what actually do you mean?
"wealth inequality crap"
Executive pay has risen relative to average pay within the same organisation in the last three decades and are broadly correlated to what the board of directors decide to pay CEOs. Board of directors are dominate by former executives. The whole system of checks and balances are, unfortuantely, peopled by individuals from the same pool of talent and thus prone to their own bias towards positive feedback.
There IS something wrong with the system. Perhaps legislation isn't the way to solve this, but it is most certainly not crap.
I urge you to look beyond the broad strokes you've painted and put some time into scrutinising the data on pay inequality and base your judgements on that.
Executives make high risk decisions and if remuneration matches that responsibility, then fine. But there is always a possibility that this remuneration may be over or below what is optimum, whatever we wish to think about sanitised, high-level economic abstractions. It works like any other complex system.
Obviously this is a topic that really strikes a chord with peopole. I wonder if there is any data on inequality of pay and whether its gone up in the past thirty years beyond the CEO level to other executives relative to average employees. That may give us a better sense of whether there is in fact a growing trend of inequality in the corporation today, rather than relying on a figure that only relates to one individual within each company.
I've yet to hear a credible explanation justifying why the USA CEO/worker ratio has exploded by 10x since the 1960s, with most of that since 1990, or why they are paid about 2x more than their foreign counterparts. Are contemporary CEOs 10x more talented than their predecessors? Are American CEOs so superior to European or Asian ones? Is running a company 10x harder than 50 years ago? Foreign companies don't seem to have trouble finding capable CEOs at much lower pay levels.
There is more than basic fairness at stake. Like excessive risk taking, empire building and general short term orientation to increase stock prices, no matter what. When you read studies stating that between 66% to 75% of mergers and acquisitions fail to pay off, or that diversifying beyond core business so often ends in disaster, just how "efficient" is business, really? When I see vast sums squandered on acquisitions neglected into oblivion, or white elephant projects that go nowhere, no wonder worker pay has stagnated.
I'll give you my explanation, which explains why the explosion occurred. In one word: Reaganomics, which is based on the Trickle-Down (on) Theory. The theory is that if you make the richest people even richer, they'll have more money to spend and that will provide more money for everybody else. The problem is that if you give money to people who have so much that they can't spend what they already have, they're not going to spend more. They'll just add it to the big vault and swim in it like Uncle Scrooge McDuck.
If you give ordinary people 10% more money, they'll be able to afford to eat in restaurants more often -- say an extra once a week. This creates restaurant jobs, and the people with those jobs have more money to spend on other things like haircuts and cars, and before long all boats rise with the tide.
If you give people with tons of money 100% more money, they'll be able to afford to eat a fancy dinner in a fancy restaurant every five minutes. But of course they can't, so the money goes in the big vault (fancy a swim?) and people end up unemployed.
People seem to forget that The question is not "Fairness" as the AFL/CIO has would have you believe.
That there are CEO's that get pay raises when their company loses money is the real problem, not that they make more money than another employee of the company .
The Question should be "does this person contribute to the profitability of the company".
Kobe Bryant makes 61Mil, not because someone wants to stick it to the hot dog vendor, but because Kobe puts people in the seats by helping the team win.
When he stops contributing to the success of the team, he will no longer recieve his huge salary.
Engineers need to rember that their salary is a function of how much money they allow the company to make or save. Does the job need to be done? Can they get someone cheaper to do it? How much is your experience really worth? It is up to The engineer to make the case that his knowledge, skill and experience is worth more than an recent Engineering grad, an H1-b visa, or next illegal immigrant.
Rather than crony capitalism, as the President of the AFL/CIO (whose salary and benefits are stated as
who knows what under the table trips and meals he actually gets)
the salary of a CEO should be directly tied to profit he generates for the share holders.
BurtB, there is more than one way of looking at the current situation, whether or not you decide to listen to the AFL-CIO. I can tell that right now you're probably employed because you'd have a little different perspective if you weren't. You also need to understand that there are various reasons some of us didn't happen to be employed back in '08 or whenever when in this pathetic game of musical chairs "the music stopped" and anyone who wasn't employed had to start competing with imported labor and their miniscule wages in order to become employed. See you're still "lucky enough" (not really, I'll get to that in a moment) to think of your employment in terms of you providing value to the corporation you work for in excess of that amount. There are a lot of us who USED to think in those terms before our bosses got it into their collective heads that in all likelihood you really AREN'T worth THAT much more than the $2 or $3 or $4 an hour that they'd have to pay to employ someone offshore to replace you, or the minimum wage they'd have to pay to bring someone over here on an H1B visa. (Or maybe you work for a defense contractor where their numbers aren't all that important, and/or they may not be able to employ a non-citizen for security reasons.) Now if we get to the point about "what value does the CEO provide for his salary" I presume you'd be just FINE with him replacing you tomorrow and adding a good portion of the "money he saved the corporation" to HIS compensation? Oh you're not? Well then how is he SUPPOSED to be compensated again? Hmmm...
As to why you're not really "lucky" to still be employed, what I'm saying is you'll be absolutely SHOCKED how long you'll STAY that way if you're on the street without work for more than something like three months or so, they'll put your name on the list with all the other "unemployables". THEN you'll understand what the rest of us are so doggone upset about! Oh yeah, now what is the TRUE ratio of a CEO's salary to that of his average offshore employee? I haven't seen anyone even TRY to calculate that one!
Absurd CEO compensation via stock to "align" management interests with supposed shareholder interests got a huge boost from the equally lame concept of "maximizing shareholder value", which is also finally getting some overdue scrutiny:
I noticed that the graph on page 1 is logarithmic and inflation adjusted. Just about anything that could ethically be done to lessen the peaks. Go to a linear scale and do not use inflation adjusted dollars and it becomes even more depressing.
I'm curious what determined the 1:12. If you assume that $10wage represents the lowest wage, then ~$120/HR or roughly $240K/year would be th cap. I assume this does not include bonuses? Interesting thought but I'm sure there would be many CEO's who wouldn't like it.