At Work

CEO pay and inequality 💰

Can we at least be clear, we are not talking about “pay” or “CEOs” We are talking about total compensation and few hundred individuals who head companies in the S&P 500 group.

CEOs do not set their own pay, that is set by the Compensation Committee of the Board of Directors and the Board. Most compensation is not salary, but stock awards, including stock options. They may have future value, they may not, but when issued they are assigned a value for the purpose of determining and reporting compensation, that value is not guaranteed for the executive.

The value is ultimately determined by the difference between the issue price and the price of the stock when the options are exercised (sold). Thus there is an incentive for the CEO to act to increase shareholder value, all shareholders.

One can legitimately argue about some of the methods used to increase value which largely revolves around boosting earnings per share, such as merely cutting expenses or reducing the workforce, but those strategies work only so long.

To make the simplified statement “When every industry stock goes up, their stock goes up,” is misleading at best. Stocks in an industry or sector do not automatically rise and fall in tandem, but a single event could impact an industry. Rising interest rates are typically negative for utilities; skyrocketing fuel prices could impact transportation stocks, etc. But to imply for example that WalMart, Costco and Target will move in tandem is simplistic and inaccurate. What happened to Kmart?

And what about “Exorbitant CEO pay is a major contributor to rising inequality.” Major contributor? A few hundred people affect inequality in the world? Our concern should not be with compensation at the top or even with the so-called inequality caused by it. There has always been inequality even if the gap is larger and more concentrated today

Our concern should be with the reasons why average people cannot advance as easily or rapidly as in the past and not with cutting someone else’s pay. And what are those reasons? A few I’ve heard mentioned include globalization, technology, our education system, decline in unions, changing structure of jobs and more, but it sure isn’t what the CEO of Verizon earns that keeps people treading water.

Exorbitant CEO pay is a major contributor to rising inequality that we could safely do away with,” study authors Lawrence Mishel and Julia Wolfe contend. ”CEOs are getting more because of their power to set pay, not because they are increasing productivity or possess specific, high-demand skills.”

“When every industry stock goes up, their stock goes up, and they’re rewarded as though they hit a triple,” Mishel said in a CBS News report. ”That’s not for performance as they are sitting in the bleachers.”

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Categories: At Work, My Opinion

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3 replies »

  1. Okay, let us be transparent. What is the annual income of Lawrence Mishel and Julia Wolfe? Lawrence Mishel ‘distinguished fellow at the Economic Policy Institute in DC since 1987’ per Wikipedia. Julia Wolfe joined EPI in 2017. What is your income and how has it changed in the last few years. Hmmmm

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  2. I think it was Thomas Edison who said that the most abundant material in the universe is unused human potential.

    Never in history has there been more opportunity to access knowledge. Almost any subject can be studied cheaply and easily due to modern technology, available to the vast majority of the population.

    Slackers of the world unite! And start studying and learning.

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  3. Are all CEO worth their pay? No. But I blame their board of directors. Are all workers worth their pay? No, not all of them even doing the same job.

    I started a major household renovation project this week. I was at Lowe’s and they had a “code 3” at the front registers. There was a line, 6 people deep at the self checkout registers. They called for a real cashier to open another lane. Went to Target and we had some big bulky items best checked out by a cashier. The self checkouts also had a long line. People were happily scanning their items at the self checkout registers. It occured to me as the woman who was checking us out that Target is paying her for something people are more than willing and almost forced to do for free. I was wondering how she feels about get $15/hr (or soon to be getting $15/hr) doing a job that has no value to the company. Her work has no value since people willingly do it for free. She is lucky to have a job. She is doing a job that does not require any special skill proven by the other customers who are willing to do her work for free. Her one hour of labor essentially has no value. This is why there is a great pay inequality. We workers trade our labor for a dollar amount per hour that adds value for the company. We get compensated by what we add.

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