How's them apples?
May 5, 2003 10:59 AM   Subscribe

Executive Pay-Day Perhaps, if we don't maintain the greatest worker-to-executive salary discrepancy in the world, the terrorists win.
posted by subpixel (20 comments total) 1 user marked this as a favorite
I think that the most disheartening thing about the executive pay discrepancy is the fact that it's basically the result of widespread corporate corruption. The boards of directors of major corporations--the bodies that, in the end, decide on executive pay--are drawn from a very limited pool of people. An executive from one company will sit on the boards of other companies, setting the stage for a situation where personal reciprocity is a more important factor than the best interest of the companies in deciding executive pay. It's a huge circle jerk.

We like to think of this sort of institutionalized corruption as the kind of thing that plagues third world kleptocracies. Unfortunately, there are a quite a few instances of widespread, publicly acknowledged and publicly accepted corruption in American society (the campaign finance system is another example--in most modern democracies, that's called "bribery"). Institutionalized corruption threatens to wreak havoc with American democracy and the American economy: we saw a glimpse of this with the corporate scandals last year. Someone needs to step up and fix American business/political ethics.
posted by mr_roboto at 11:31 AM on May 5, 2003

And maybe that someone will be Warren Buffett?
posted by mr_roboto at 11:38 AM on May 5, 2003

Well, if you're a stockholder, you can do what I do, and vote against the current boards and the salary packages and the "bonus" packages.

Oh, who the hell am I my little 100 shares of some stock really make a fruitloops bit of difference when these bozos are awarded millions of shares of stock, and then get to vote on their own continuing compensation. And with an MBA president pushing for tax cuts to further compensate the same people that laid off 2.6 million workers, and Congress trying to gut worker's rights, the workers of this country have no power anymore. (Not that they ever had a lot to begin with...)

What we need is a good revolution.
posted by dejah420 at 11:53 AM on May 5, 2003

Interesting comments, Mr. Roboto, but I think the problem is that what you regard as corporate corruption, the rich would regard as the plain old free market doing its job. Somehow they seem to have convinced themselves that the reason a large gap is acceptable is that the big cheeses deserve their big salaries, as they are "engines of innovation and commerce." THEN the circle jerk stuff happens. It's stuff-n-nonsense, of course, but the disgusting part is that the notion has insinuated itself into American consciousness.... "oh, maybe my little juniorlina will be the next Bill Gates and get me the ferrari i always wanted." Blech.

The depressing part is that if you say cynically to somebody "so much for equality in america" they still accuse you of communism!
posted by DenOfSizer at 12:01 PM on May 5, 2003

I have to say that it's nice to work for a big company where the boss still makes a salary close to (if not less than) the average worker. I was surprised a short time ago to learn that Jeff Bezos' salary has averaged $81,559 over the past 6 years. Granted, he's got plenty of stock, and isn't hurting, but it's still refreshing to see a modest salary for a CEO, especially my own. More on this here.
posted by kokogiak at 12:19 PM on May 5, 2003

Neil Minow from a Business 2.0 article on this subject. Jill Barad was the former CEO from Mattell.

"Barad's original employment agreement was worth about $21 million."

"The provisions in her separation contract were a combination of the generous (five years' salary and bonuses worth $26.4 million) and the ludicrous (options to buy her office furniture for $1; free financial-counseling services; forgiveness of a $4.2 million personal loan; forgiveness of a $3 million home loan). And get this--she also received $3.31 million to cover the taxes she owed on the forgiveness of her home loan. Total: about $47 million, not including options."
posted by Nauip at 12:37 PM on May 5, 2003

Err, Jeff Bezos's modest salary is pretty irrelevent considering that isn't how he brings home the bacon. If I'm adding it up right, in 2002 he sold over $150 million in AMZN stock. True, his compensation is derived from being a shareholder rather than a CEO. Nevertheless, don't put Bezos on a pedestal for being a humble CEO -- the only reason CEO Bezos is content to earn only $81k/yr in salary is because he cashes in equity worth millions per year.
posted by blue mustard at 12:46 PM on May 5, 2003

Ok, I don't know the whole story regarding Bezos, but if he sold stock he OWNS, rather than stock OPTIONS, what's the big deal? He started the company, after all -- he owns it!

That's not the same as executives who don't own the company and are handed $millions$ in shareholder equity on a plate by their chummy buddies on the board. You know, that money comes from somewhere, not thin air. Its disgusting.
posted by PigAlien at 1:00 PM on May 5, 2003

They used to say that CEOs made so much because they assumed all the risk.

Then I think to myself... If I get fired, I'll get a couple of months unemployment insurance, the opportunity to continue my health insurance for a few months at quadruple what I pay now, and if I'm lucky two week's severence.

If my CEO gets fired, his parachute opens. He gets a multi-million dollar severence package, vested options, and unspecified benefits (such as use of the company jet, company apartment, and other perks) that will only come to light if he gets divorced.

Who's in the riskier position here?
posted by Cerebus at 1:07 PM on May 5, 2003

Quick thoughts:

•Abolish minimum wage

•institute "maximum wage."

Tie the salaries of the highest paid executive with the lowest paid worker. One would also have to figure out how to calculate an executive's true income (options, benefits, free hookers, etc) but once the bean-counting is done, the highest paid employee of a company should only be able to earn, say, 20% more then the lowest paid employee. If 20% is too low, maybe 50% more, whatever. 415% is simply out of control and income disparity of that magnitude is going to lead to political problems down the road.
posted by elwoodwiles at 1:20 PM on May 5, 2003

elwoodwiles: using the United States statistic from the original link, the percentage of income disparity is not 415%, it is 47,500%.
posted by letitrain at 1:48 PM on May 5, 2003

Am I the only one that thinks this is a bad post? It is a link to a graphic. How about some articles or examples? Does this include all companies? Public companies?

For the sake of argument, let's say that a McDonald's employee makes $5/hour x 2000 hours per year. That's $10000 a year. The CEO makes $20 million. That's 2000 times as much as the lowest wage earner, and neither the employee nor the CEO's pay is a far stretch from reality.

As for the income discrepancy, I do think CEOs (and athletes for that matter) are overpaid. The idea to reward performance with stock options has resulted in bloated compensation packages. However, I think limiting pay is a bad idea too. I'd hate to do a great job and not be able to be rewarded for it.

Using ellwoodwiles' example limiting executive salaries to 50% of the lowest paid worker, the McDonald's CEO would only be able to make $15,000 dollars for a job that is arguably more difficult than making fries. At 475x the lowest wage, the CEO would make $4.75 million.

I think shareholders and directors will end up bringing compensation into line, but it will take a while.

(on preview, letitrain, you can correct my math too, since I used ellwood's numbers)
posted by Frank Grimes at 1:58 PM on May 5, 2003

Tie the salaries of the highest paid executive with the lowest paid worker.

Isn't that what these guys do?
posted by gottabefunky at 1:59 PM on May 5, 2003

I'm wasn't necessarily trying to idolize Bezos - I know he's doing well in the stocks, and said so - I'm just drawing a contrast between him and other CEOs who double-dip - get amazing stock compensation AND ridiculously high salaries. That can make a marked difference when it comes to the quarterly/yearly bottom line for a given company.
posted by kokogiak at 2:16 PM on May 5, 2003

I think that whole foods limits it's compensation so that the top executive can't make more than 10X the lowest worker.
posted by batboy at 2:27 PM on May 5, 2003

It is not a good idea to link those salaries (including benefits), as they will distort work incentives: why should I take the risk if I get a fixed salary x% higher than a regular worker? Stock options and other benefits are here to solve the principal-agent problem (pdf).

However, the payment schemes are not perfect. Managers can bypass them and camouflage some of the benefits.
posted by MzB at 3:06 PM on May 5, 2003

I recall reading an article where Ben and Jerry (yes, the ice cream dudes) were looking for a new CEO because they just didn't want to be running a company anymore. They had this idea that they'd only pay the CEO a certain sensible multiple of the average non-executive worker's salary, and they put the word out and started interviewing candidates.

They couldn't find anyone qualified willing to do the job for that little, so they eventually had to raise their offer.

Most people don't understand what the executives at the companies they work for even do, or what they contribute to the bottom line. I won't claim all CEOs are entitled to every bit of compensation they get, but I do know that really good ones are very rare and are probably worth the stupid amounts of money they command from the viewpoint of the shareholders. The trouble is, it's not always clear who the really good ones (for your company) are, and it's easy to make a fat offer to get the guy you think will be your savior, only to find out he's not performing for some reason and then be stuck paying him. This isn't as bad as it used to be, as a lot of boards are now tying pay to performance, either with options or with outright stock grants, but do you think if you wanted Jack Welch to be your CEO, that he would be inclined to come work for you if you insulted him by as much as telling him you're not sure of his abilities?

The truth is, there are a lot more companies that need stellar CEOs than there are stellar CEOs, and simple supply and demand drives up the price of anyone who looks even slightly stellar. Any corruption (I don't deny it probably exists, there's a lot of cronyism among boards) is on top of this but is probably not the root problem.
posted by kindall at 3:26 PM on May 5, 2003

Clearly, American companies need to start recruiting foreign CEOs, since there is no similarly severe shortage of qualified managers in any other country on the face of the Earth. In fact, if we assume that executive pay is an accurate reflection of supply and demand, the shortage in the United States is an order of magnitude larger than the shortage in any other country. Why is this? Are American business schools providing inadequate training? Are Americans in general simply incompetent business people? Do Americans just not care about making money?

No one objects to the idea that a skilled executive is worth compensating. The contrast between American executive pay and executive pay throughout the rest of the world is an indication of a problem, however.
posted by mr_roboto at 4:22 PM on May 5, 2003

(Warning - rant follows...)

To me, the true problem here is not that CEOs make so much - it's that factory floor workers make so little.

We live in a world where the minimum wage is below poverty level for an individual. Per the Department of Labor, minimum wage is $5.15. That's $10,300 per 2000-hour work year, gross. Assuming a single person with no dependents, a full-time job paying minimum wage takes home about $720 per month (or $8,640 per year.) The poverty level, as established by the Census Bureau for the year 2000, is $8,959 for one person under 65.

There's no easy way to survive on your own on just minimum wage. There is an out, however - the poverty level for two people, householder under 65 years, including one child under 18 years is set at $11,869. So, you're stuck with a roommate or partner (at the very least) just be able to afford both food and shelter. Assuming both of you file separately, you'll have $17,280 per month take-home pay.

That's still only $1,440 a month.

Let's talk about where that money goes. I live in the Seattle area (King County, Washington.) The average rent for a one-bedroom apartment in all of King County is $693 per month. (You can't afford a two-bedroom apartment - it's $768 per month.) Most can't afford a one-bedroom unless you're living with a partner (and I don't have the average rent for studio/efficiency apartments.)
If you're unfortunate enough to not afford a car, you're stuck living in central King County, where the average rent for a one-bedroom apartment jumps to $837 a month. If you're living with a roommate, or a partner with a child, and you need to rent a two-bedroom apartment, that rate jumps to $1,030 per month for central King County.

And we haven't even gotten to food, clothing, bus fare, utilities, etc. You want to improve the quality of life across America? Tie minimum wage to the cost of living, and make sure it's 15% or more above poverty level.

It's not just the money, though. I remember minimum wage; I've been on my own since I was 17. I'm fairly well off, now, but life sucks on minimum wage. Not just because you're broke, but because you're scum (more on that later.)

And yet, there are companies out there who will rotate you through a horrible schedule just to keep you at the 30-hour mark so you don't qualify as a full-time employee - because, if you do, then they have to pony up for benefits to supplement your already-grossly inflated mandatory wage of $5.15 per hour. You don't count as an employee - remember, there's always someone else who needs a job, and you're making minimum wage, so you're often considered disposable.

That "scum" part I mentioned earlier? Folks making minimum wage have to put up with an immense amount of crap from folks who make more than minimum wage, because our country has decided that money determines your personal quality; if you make minimum wage, you might as well be an Untouchable at a party of Varnas.

You want to give a little justice? I couldn't care less how much a CEO makes, as long as the CEO's employees make enough on which to live. Typically, they don't, and that to me is the real problem. Tax breaks aren't going to do it - if you only make $10,300 a year, getting an extra $200 bucks isn't going to help. Raising minimum wage to a real working wage, and tying minimum wage to the cost of living, will help.
posted by FormlessOne at 7:49 PM on May 5, 2003

FormlessOne: Hear hear. A lot of self-proclaimed conservatives have never really been poor, and it shows.
posted by Cerebus at 7:44 AM on May 6, 2003

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