As reported in The Guardian today, US CEOs now make in pay 339 times the pay of the average worker according to a Bloomberg study of 225 companies. In retail companies, the ratio is 977 to 1 on average. Let that sink in a little.
A quote from the article entitled “‘CEOs don’t want this released’: US study lays bare extreme pay-ratio problem” by Edward Helmore is very revealing:
“According to a recent Bloomberg analysis of 22 major world economies, the average CEO-worker pay gap in the US far outpaces that of other industrialized nations. The average US CEO makes more than four times his or her counterpart in the other countries analyzed.”
Some people may push back and opine that US CEOs may be worth 4X that of their non-US industrialized nation counterparts. If that were true, it would mean US company performance is 4X that of non-US companies and there would be a huge flight of capital to the US.
In my years as a consultant, I have seen CEO pay ratchet up over time, rewarding CEOs with stock grants and options. What happens is a competitive totem pole exercise, where the competitive pay analyses are upward elastic and downward inelastic (they go up more easily than they go down) over time.
I have also observed the 80/20 rule applies to CEOs as well, with 20% of the CEOs earning their keep. I have worked with egalitarian CEOs, benevolent dictator CEOs and some of the greediest SOBs you will ever meet. Seeing CEOs who realize the teamwork involved in the company making money is admirable. On the converse, seeing CEOs who are imperialistic is off putting. As I write this, I am thinking of the handfuls I worked with and some who were notorious over the years for their greed.
On the bottom end of this exercise are efforts to flatten pay for the average worker. Over time companies will use a variety of rationales and tactics to put lids on pay increases. The salary increase budget may be limited because of the uncertainty in the economy, the company is having some hardship or the company expects to have hardship. Sometimes concurrent with the salary budget, groups of people are laid off. Why is the timing an issue? By moving on lower performers, people whose salary increases would have kept the average percentage increase down are removed from the equation meaning better performers will now get lesser increases.
Coupling this with pressure on not increasing the minimum wage and to diminish the power of labor unions (that is another story), these ratios result. I respect greatly the need for incentives to help reward successful CEOs, but we must not forget who helped them earn those numbers.
We have a poverty problem in this country. We have a middle class where too many are living paycheck to paycheck. Yet, our leaders passed a tax law that benefits CEOs, their companies and the wealthy by a large margin. It would have been nice to have at least obligated the pass through of salary increases or an increase in the minimum wage to a living wage. So, do not expect this ratio to measurably decrease any time soon.
musingsofanoldfart 
I studied this problem while teaching Business Ethics years ago. It has been an issue for many, many years. It’s especially graphic when you compare these figures with those of other “developed” countries! And it doesn’t get any better even though the fact has been widely known. Sad. Very sad, especially, as you say, with the Middle Class shrinking and poverty becoming more widespread..
P.S. I reblogged this. OK??
Any time. Thanks.
Hugh, I have seen too many C-suite people cut corners to make their goals, legally and illegally, but often unethically. Buying back shares is legal, but is usually done to prop up EPS to make an incentive goal. It is often seem as a sign of weakness. So, it is telling shareholders “we cannot make our profit goals, so we are going to use smoke and mirrors. It is tolerated because CEOs on the Board do it at their companies. Keith
Reblogged this on hughcurtler and commented:
This is sad, but not new. It has been going on for many, many years. And the problem is even more distressing when the figures are compared and contrasted with the CEOs in other “developed” countries.
Hugh, many thanks for your comments and reblog. I recall your interest and knowledge of this topic from previous posts and comments. Keith
No surprise Keith, in fact expected.
Holly, what frustrated me is the token bonuses given out to show how magnanimous companies were after the tax bill. A $1,000
bonus is nice, but what about a raise since the tax change is recurring? Keith
I knew that wasn’t happening Keith. The 1000 dollar bonus was a token as you say and that was supposed to soothe the realization that the rich CEO are the real beneficiaries of the tax reform. And the sheep continue to march toward the cliff edge dragging the rest of us along.
Holly, I have seen the token bonus used as a gimmick many times before. So, it was used as window dressing earlier this year. And, that is unfortunate. Keith
I’m not sure where this will all end… or if it will. Sometimes I’m glad that I’m old and sometimes I wish I could get a glimpse into the future to see how this great wealth disparity plays out. The dystopian novels may not be too far off in their predictions.
Janis, I don’t see it ending unless better pay can be demanded. The teachers have been on the short end for years, but are showing what happens when they rise up. Taking advantage of others has a long history. Keith
Note to Readers: I have shared before these stories, but for your bemusement, did I tell you about the CEO who:
– invited customers to his daughter’s wedding so the company would pay for its extravagance;
– expensed light bulbs acquired for his townhome since he did some work there;
– had three Supplemental Executive Retirement Plans each which leveraged the benefit higher;
– had a change of control plan that provided an unheard of 5X pay benefit, grossing him up for any taxes due;
– had lavish birthday parties in Italy with top name entertainers at company expense; and
– had expensive townhomes for use by the CEO and two sons who were on the payroll.
I could go on. So, in addition to very nice pay, these CEOs wanted more nice things. On the light bulb issue, the CEO of the company that acquired his company sent him $20 and said these are the last light bulbs I am paying for.
Note to Readers: On the positive side, the founder and first President of Nucor believed all employees needed to be invented to produce quality products in a profitable way. To show they were all in this together, when he did not meet his corporate goals he stood up in front of people and said my bonus this year is $0. I did not earn one.
Well designed, communicated, audited and executed incentives can help organizations achieve a great deal. Poorly designed incentives, as Wells Fargo found out, can cause unproductive behaviors.
What I like about the Nucor story is everyone was held accountable. That is a word that is foreign to some leaders.
Keith, I do think this is an issue that is not getting enough attention. We scream for higher minimum wage and fight over taxes, when these flippin’ freaks are raking in the bucks hand over fist, pillage companies, avoiding taxes, and enjoying their membership in a shrinking pool of multi-billionaires that siphon resources from the rest of us.
Linda, well said. We have a growing poverty problem and the solution of this President and leaders in Congress is to give more money to rich people and companies. That sums it up. Keith
I am truly sickened by all of this. The pay disparity is truly obscene. I think it is time for a reinvigorated labor movement that not only uses the strike weapon but also launches general strikes to shake things up. If the workers just do nothing citing a lack of power, perhaps they should revisit their history… you know, that useless subject…
John, it is sickening. The best visual was used several years ago by an economist. In defining what has happened to pay differential, he said looking forward from 1980 if you stretch one arm straight and the other arm diagonally upward, the gap between your two arms reveals what has happened to pay differential over the years. Keith
Dear Keith,
A recent poll showed that 40% of Americans cannot cover their most basic expenses. There are many workers working at 40 hr. low paying jobs to where they qualify for government assistance programs.
It is my opinion that the USA is fast becoming an oligarchy, a government for the rich and by the rich. The rest of us are pawns to benefit the wealthy. Income inequality threatens our democracy.
This will not be fixed by trickle down economics. There needs to be a c-change where there are serious efforts to address the needs of the middle class/ poor.
Hugs,Gronda
Gronda, this is a sad and unsurprising statistic. I hate to break it to you, but I think we are already there with oligarchy. With the Supreme Court allowing dark money to flow into any political race. We must retake our democracy and these protests and women running for office is a good start. Keith