Monday, February 29, 2016

Outrageous CEO Pay

One of the biggest issues being debated on and off the campaign trail is the growing gap between the rich and the poor along with the shrinking of the Middle Class.  A main target of many of the protests and disparaging remarks is the ratio of CEO pay to that of the average worker in the company.  It is one of the statistics invariably mentioned when discussing the disturbing growth of income inequality.

CEO pay is a popular topic among candidates because almost everyone agrees that CEOs are paid outrageous amounts.  “According to the Economic Policy Institute, from 1978 to 2013, CEO pay at American firms rose a stunning 937 percent, compared with a mere 10.2 percent growth in worker compensation over the same period, all adjusted for inflation. In 2013, the average CEO pay at the top 350 U.S. companies was $15.2 million.” Every other week we see headlines like these:  JP Morgan CEO gets 35% pay raise to $27M amid cutbacks” and “Viacom CEO Pay Rose 22 Percent in Year Stock Tumbled.”

Ordinary citizens have trouble even grasping the size of these pay packages, so a convenient way to talk about it is to use this ratio of CEO pay to the pay of the average worker in the company.  One source gives this ratio as “20-to-1 in 1965 and 29.9-to-1 in 1978, growing to 122.6-to-1 in 1995, peaked at 383.4-to-1 in 2000, and was 295.9-to-1 in 2013.  (In most news reports and political speeches the drop since 2000 is not mentioned, nonetheless it still has grown by a factor of 15 times for no apparent reason.)  Other sources have the ratio as high as 475-to-1.

There seems to be nothing to be done short of government intervention, but perhaps there is another solution!  Americans can wait around until the big companies’ lobbyists and our representatives decide what action, if any to take, or they can take some action on their own, immediately – voting with their dollars.

Take business away from some of the top offenders until they get the message.  But is anyone willing to do it?

From another source I got a list and arbitrarily set a ratio of 150:1 as the cutoff.  Of the top 100 companies in US, the worst offenders are:  AFLAC (157), Altria (175), Boeing (198), CVS (422), Deere(150), Goodyear Tire (322), Honeywell (211), Twenty-First Century Fox (268) and Walt Disney (273).

The big question is:  Are enough people really upset enough about high CEO pay to do something about it, or is it something they just like to complain about?  Would we find another insurance company (even if we think the duck is amusing), take our prescriptions to a different pharmacy (even if we admire them for banning tobacco products), buy a different brand tire or – and here’s a big one – stay home from movies like The Revenant and Star Wars, or tell the kids no trip to Disney World and no Frozen or Star Wars memorabilia until the CEO takes a paycut?  I think not.

Just as we don’t mentally group our favorite sports heroes, movies stars, television personalities and music entertainers in with the hated one-percent, I think we would give many of these CEOs a pass and continue to patronize their companies.

Note:  Some of the biggest offending companies listed elsewhere include Discovery Communications, Chipotle, Walmart, Target, Macy’s and Starbucks.  It’s just a matter of who is doing the calculations, but these are a few more to consider.

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