I read a fairly interesting piece today which discussed the recent announcement from the White House of new guidelines on executive pay for companies who received bailout money. The article starrted me thinking about the reasons that people believe CEO’s make too much many and just how much is too much. You can read it as well here: http://blog.kld.com/kld/president-obama-limits-salaries-at-bailed-out-banks-investors-to-seek-say-on-pay-at-100-corporations-in-2009/
According to the AFL-CIO, in 2008 the average compensation package for a S&P 500 CEO was $10.9 million. A short look at each company shows a wide range around this average from only a few million upwards of more than 20 million. I will be the first to admit that $20 million is a huge sum no matter what job you are doing. Before we go crying off to big brother though, maybe we should take a look at just how much that really is and where all that money comes from.
In 2007, the CEO of Boeing Aircraft made about $14 million. That same year, Boeing made about $4 billion in total profits. I’ll let you do the math, but as a percentage of company profits, $14 million is not very much. This is only one example, but I am sure the same holds true for most other Fortune 500 companies. A company that makes a lot of money can afford to pay the big bucks to the guy with all the responsibility. Now, setting aside the whole total CEO pay issue, lets look at what those CEO’s make compared to their employees. After all, if a company is making enough to pay the CEO the big bucks, then the average employee pay should go up as well right? Well, not necessarily true as it turns out and this is where the real injustice is in my opinion.
In 1965, the average CEO of a large company made about 24 times what the average worker earned. By 2007, CEO pay had risen to 275 times that of an average worker. Over the last 40 years, we have seen the emergence of a class of top level managers who demand, and get far more in compensation than they rightfully deserve. Right or wrong, this is where we have found ourselves and I believe we can emerge from the other end looking much better without government intervention. More and more shareholder groups are starting to hold CEO’s accountable and reducing benefits packages. Keep in mind that the largest increases in CEO pay have taken place over the last ten years as this class of managers matured and took root. Most of these high paid execs are in their 60′s and likely will not be working much longer. Maybe if we cut their pay a little we can entice them to go ahead and retire and get out of the way.
Rich