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There’s No Good Reason for Your Boss to Make 347 Times What You Do

| July 11, 2017

Rembrandt's 'Parable of the Rich Fool,' 1627. wealth inequality ceo pay

Rembrandt’s ‘Parable of the Rich Fool,’ 1627.

By Steven Clifford

CEO pay at America’s 500 largest companies averaged $13.1 million in 2016. That’s 347 times what the average employee makes.


So CEOs make a lot of money. But, some say, so do athletes and movie stars. Why pick on corporate bosses, then?

First, because the market sets compensation for athletes and movie stars, but not for CEOs. Teams and movie studios bid for athletes and movie stars. CEO pay is set by a rigged system that has nothing to do with supply and demand.

NBA teams bid for LeBron James because his skills are portable: He’d be a superstar on any team. CEOs’ skills are much more closely tied to their knowledge of a single company — its finances, products, personnel, culture, competitors, etc. Such knowledge and skills are best gained working within the company, and not worth much outside.

In fact, a CEO jumping between large companies happens less than once a year. And when they jump, they usually fail.

Lacking a market, CEO pay is set by a series of complex administrative pay practices. Usually a board, often dominated by other sitting or retired CEOs, sets their CEO’s pay based on the compensation of other highly paid CEOs. The CEO can then double or triple this target by surpassing negotiated bonus goals.

other-wordsThis amount then increases target pay for his or her peer CEOs, giving another bump. Since 1978 these annual rounds of CEO pay leapfrog have produced a 1,000 percent inflation-adjusted increase in CEO pay.

At the same time, the bottom 90 percent of American workers have seen their real incomes decrease by 3 percent.

American workers were once rewarded for productivity. Real wages and productivity rose in tandem at about 3 percent annually from 1945 through the mid-70s. But since then the bosses have taken it all. Although productivity growth increased real per capita GDP by 84 percent over the last 36 years, real wages have remained essentially flat.

Where did the money go? It went to the 1 percent, and especially to the 0.1 percent.

The latter group, a mere 124,000 households, pocketed 40 percent of all economic gains. Business executives, CEOs, or others whose compensation is guided by CEO pay constitute two-thirds of this sliver.

In other words, it’s business executives — not movie stars, professional athletes, or heiresses — who grabbed the dollars that once flowed to the American worker.

Outsize CEO compensation harms American companies, and not just in the tens of millions they waste on executive pay. The effects on employee morale are much more costly. When the boss makes 347 times what you do, it’s difficult to swallow his canard that “there’s no I in team.”

flaglerlive commentary, opinion dissentWorse, CEO pay encourages a short-term focus. Instead of making productive investments, companies buy back their own stock to keep its price high, which boosts their own paycheck. From 2005 to 2014, stock buybacks by America’s 500 largest public companies totaled $3.7 trillion. This consumed over half of their net income.

That $3.7 trillion could have been invested in plants and equipment, new technology, employee training, and research and development. Instead, corporate America cut R&D by 50 percent, essentially eating the seed corn.

If athletes and movie stars were paid less, team owners and studios would simply make more. The hundreds of millions paid to CEOs, on the other hand, hurts their companies, employees, and our economy. It’s a principal driver of our country’s startling income inequality.

One of the few checks on CEO pay is a rule under the Dodd-Frank financial reform law requiring companies to disclose the ratio of CEO to average worker pay. Congress is now considering repealing this rule.

If you think CEOs making 347 times what you do shouldn’t be held secret, maybe it’s time to let your representatives know.

Steven Clifford is the former CEO of King Broadcasting and the author of “The CEO Pay Machine: How It Trashes America and How to Stop It.”

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16 Responses for “There’s No Good Reason for Your Boss to Make 347 Times What You Do”

  1. John Boy says:

    Where are all the comments from my fellow citizens on this issue of great importance?

  2. deb says:

    when I first saw the title, I presumed it was about the P.C. City Manager .

  3. Pete says:

    Steve:

    This article shows yo how little you really know about business.

    CEO pay IS set by a highly competitive process; it’s not just grab whatever you can get.

    Let’s talk about value; what’s more important: paying some athlete millions to throw a ball through a hoop or paying and executive millions to make sure his corporation affecting the lives and livelyhood of many thousands is run properly and capital allocated intelligently.

  4. Sherry says:

    This is a great analysis. One of the major factors in why our economy is suffering. And why a person like Trump should NEVER be president. Instead of repealing Dodd-Frank, the law should be extended to cover ALL major business sectors, in addition to the financial businesses. The CEO of the company I retired from received a $25 million bonus every year. Nobody is worth that. Just think of all the business expansion and additional employees would have been possible with that money!

  5. David S says:

    City Mgr ????????

  6. joe says:

    “CEO pay IS set by a highly competitive process; it’s not just grab whatever you can get.”

    The boards of most corporations, where fellow CEO’s sit on other CEO’s boards, along with the coziness of the so-called Compensation Committees are not exactly what most would consider HIGHLY competitive. More like, “you scratch my back, I’ll scratch yours” – the “highly competitive” stuff is left for the peons.

  7. Sherry says:

    @Pete. . . while I certainly agree that professional athletes are paid waaaaay too much. . . as well as many actors and celebrities and stock brokers . . . . “Two Wrongs Still Don’t Make a Right”!

    Joe is quite correct. . . the majority of very highly paid officers of large corporations keep their circle very tight. Often they are actually quite corrupt and have leverage over one another in some fashion. . . including the faux compensation committees.

    They live in a completely different world than the rest of us. . . they often wonder why we don’t just “eat cake”. . . this certainly includes the trump family. They don’t have a “CLUE” about the lives of the vast majority of people. . . and could actually “care less” if we live or die, much less thrive. . . EXCEPT for when we can be manipulated into doing something for them. . . like vote!

  8. Traveling Rep says:

    I was considering vegas next month. Does this mean that if I risk a bundle and win, I am obligated to share the winnings with those not willing to do the same? What about if I lose? Are the naysayers here going to make me whole again? What about those 10000’s of hours I worked to grow the business , at almost no pay? Are you prepared to now reimburse me with commensurate pay?

    How msny of you want to help guide me through a maze of legal mumbo jumbo on s daily basis, all while making decisions in an attempt to preserve your job? Who are you to try and cap my earnings? I put everything i had on the line.

    Signed,

    The CEO

  9. Anonymous says:

    Post WW2, the average nurse made 1/3 of a doctor’s salary. In 1980, the average nurse made 1/17 of a doctor’s salary in spite of increased duties, responsibilities and much more liability. Nowadays, I am sure the disparity is much greater. Is there any logical reason for the disparity other than nursing being a predominately female profession. For all who think they have the answer, just remember, when you go into the hospital, you are there for nursing care, not medical care, just nursing care. If you were there for medical care, then there would be a doctor attending to you 24 hours a day. You are there primarily for the eyes and ears and skill and knowledge of nurses who watch you for any change in your condition if the hospital provides proper nursing staffing. Why do the CEO’s of hospitals, insurance companies & pharmaceutical companies make millions of dollars and the doctors make at least 17x more than nurses and the nurses who are responsible for your life make peanuts. It is time we take back our country from people like trump and big business.

  10. woody says:

    Some people are just haters.

  11. Sherry says:

    Imagine how much “Greater” our country would be if the wealthy billionaires/millionaires actually PAID their “fair share” of taxes instead of hiding their millions “off shore” in secret accounts, and using “tax loopholes” to “CHEAT” US citizens.

    If the wealthy actually PAID their taxes, we would have a ZERO deficit.

  12. Traveling Rep says:

    Sherry, please share with us: exactly how much is the fair share that the wealthy need to pay? Once they’ve paid that amount, is your intent to move the goalposts?

  13. rst says:

    Well said Sherry; again…

  14. rst says:

    @Traveling Rep: A fair share is higher taxes for the wealthy; somewhere around 50% while closing the loopholes regarding “offshore accounts”. Before you scoff, research the tax rates post WWII and you will find that they were near 90% under a republican president (Eisenhower). And, before all the air is sucked out of the room with negative comments, the economy during this time (post WWII) was thriving as it would be if this type of tax was legislated and enforced. Remember, the people with the money want more money and they will create more businesses to make it if they are keeping less of it because of a higher tax rate. It’s a greed thing…

    (In my humble opinion, the wealthy should be defined as any person making more than 1 million dollars a year). Sherry is correct…

  15. Sherry says:

    Thanks so much @RTS!

    Keep in mind that many wealthy people do NOT pay income taxes (as you and I do). . . They pay only “Capitol Gains Taxes” at a current maximum of 20%. Often they don’t even want to pay that, and so they hide their money off shore..

    Here is, generally, how the wealthy avoid paying taxes by using secret off shore accounts. . . this from Quora:

    Yes, what we are talking about is income tax and some wealth taxes.

    Here is how the income goes offshore and why it is not taxed :

    Step 1 – Choose A Haven
    For people hiding money, choosing one of the world’s 60 or so offshore jurisdictions is tricky. Each has advantages and drawbacks. It’ snot unusual for secrecy seekers to continually move funds around, trying to find the best place for their assets.

    Step 2: Create A (Secret) Identity
    Next, a tax dodger would create a corporation, trust or other entity to disguise the true name behind their offshore money. For extra secrecy, they often pay front-people called ‘nominees’ to serve – on paper at least – as the entity’s director.

    Step 3 – Open A Bank Account
    The secret company or trust needs a bank account. A person wanting extra anonymity will sometimes open the account in a different offshore locale than where the company or trust is registered. Note: Banks usually ask about the source of incoming money to curtail money-laundering.

    Step 4 – Move The Money
    Creating a secret offshore company or bank account isn’t in itself illegal. But in this step, people needing to move money into their accounts undetected have found a variety of ways to skirt the law.

    Step 5 – Invest The Money
    Offshore money can be invested into mutual funds, bonds, stocks, property – you name it. For those who don’t plan to declare the investment income, as required by law, this is where offshore secrecy works to their advantage: Profits compounded out of sight of the taxman.

    Step 6 – Spend The Money
    Bringing untaxed offshore money back home to spend presents a dilemma for the “ethically” challenged. One option is to just come clean to tax authorities and avoid possible jail time. Most methods involve deceit and constitute illegal tax evasion.

  16. Sherry says:

    Here’s what trump, and Fortune 500 companies think of paying a “fair share” of taxes. . . this from the Guardian:

    It was one of the highlights of an unedifying US presidential race. The subject: Donald Trump’s tax returns. Hammered by Hillary Clinton over the disclosure that he’d paid no federal tax, possibly for 18 years, Trump was unable to restrain himself.

    There was no apology. That would have been out of character. Instead, the Republican nominee blurted out four words: “That makes me smart.” For once Trump – serial liar and alleged serial groper – had inadvertently revealed a great truth.

    Offshore secrets of Brexit backer Arron Banks revealed in Panama Papers

    In the 21st century those who dutifully pay taxes are dupes. We are the losers in a modern game in which only “smart people”, as Trump indelicately put it, know the rules. In fact, the rich and powerful quietly exited from the business of paying tax a long time ago.

    The evidence is all around. A new study of America’s leading Fortune 500 companies reveals that 367 of them – some 73% – have at least one or more subsidiaries in tax havens. Some have hundreds. This allows them to legally ship profits offshore.

    In Britain, meanwhile, it emerged that eBay paid just £1.1m in tax last year, despite telling US investors that the UK was its second largest market, generating revenues of £1.1bn. The cash originating in the UK flows to a parent company in Switzerland.

    The mind-boggling scale of the problem is laid bare in a slew of books and reports that reveal the way in which multinational companies have excused themselves from paying vast amounts of tax.

    The companies are a who’s who of global brands: Apple, Nike, Google, Pepsi, Pfizer, Walmart, Goldman Sachs, and practically every other multinational in business.

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