At Work

Take all the CEOs compensation and buy yourself a latte

Some politicians are hell bent on eliminating billionaires and cutting CEO pay with the implication that all that money should be given to workers. While it sounds appealing to many, I wonder if anyone actually does the math.

Such rhetoric is intended to divide us, and it is dangerous.

The fact is for S&P companies, which are the target of this wrath, reducing the CEO compensation to zero and giving it to workers would be insignificant to workers and more expensive for companies to provide.

Keep in mind that only about one-third of executive compensation is cash. The rest is stock awards of various types. The stock has no value until it can be sold which is restricted for several years in most cases.

In any case, let’s do some math. The CEOs total compensation is $22,000,000 of which $13.2 million is shares of stock. The company employs 125,000 full-time workers. Here is the formula:

The CEOs compensation is equal to $176 per worker or $0.084 per hour which equals $3.38 a week. Since workers likely want cash, that equals $1.35 per week.

That raise to workers costs the employer more than it appears because to that must be added federal and state payroll taxes and the cost of any benefits that are pay related; vacation, sick time, pension, 401k match, etc.

The attacks on CEO pay (don’t get me wrong, they are not all worth what they receive) is as ludicrous as the attacks on health insurance company profits where it is implied those profits are a major factor in health care costs and premiums, they aren’t. Take the gross profit from health insurance sales for any insurance company and divide that amount by the number of policies in effect and see the impact on premiums. It’s quite insignificant.

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8 replies »

  1. Thank you again … here goes ….

    Often, I run into written essays, opinion pieces, etc. that really try to be compelling, but just don’t seem “quite right”. They generally have a super-abundance of the term/phrase, ” … the government …”, such as “The government could provide ….”. Well, you know.

    So, I use this “trick” to specifically identify the elements that just don’t seem to be “quite right”:

    It begins with copying the full essay (or whatever), and pasting it into your favorite word processor.

    Then, in the “Edit” function, select the “Find/Replace” function – to Find every instance of the word “government” and Replace it with the word “taxpayer”. And then hit the “Go” button.

    THEN, re-read the edited full essay (or whatever). And notice how much LESS (or more) compelling it reads, when it’s encumbered by the truth.

    (This trick is also really handy to use with essays (or whatever) that contain a super-abundance of the phrase, “We need …..”! Just have your word processor Find every instance of that “We need” phrase, and Replace it with the phrase “I need ….” – and see how much difference there is in the meaning and “compelling” nature of the essay!)

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  2. I have a request, Mr. Quinn.

    Some years ago, I stumbled on a quick, simple little “trick” I use often to quickly identify “word distortions”, for lack of a better term, in written work. I suspect you and other viewers here might find it handy, or at the very least entertaining, as well.

    With your permission (in a Reply comment), I’ll post it – as a separate comment, and you can give it a try. Let me know.

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  3. Just one more tax policy that will force companies to move offshore and enjoy the pay laws of some other country. All the CEOs will be foreign nationals.

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  4. A quick, but I think relevant true story …

    Some years ago (pre-financial crisis, mid-2000’s), I was completing my very last graduate management degree, and the required course was titled, “Executive Compensation”. The textbook was authored by a couple of folks who were, let’s say, “like-minded” with those politicians you refer to here. As was the “professor”. Academics all, their foundational perspective was that U.S. CEO’s, across the board, were/are at least over-compensated, and most often, grossly so.

    Mid-course, one of the required readings for the class contained a “case study” of the compensation provided by Apple, to none other than, Steve Jobs – as a classic example of CEO OVER-compensation, based on their “formulaic method” for determining “fair and just” CEO pay.

    By pure coincidence, on the very day of that class, Apple stock closed a bit above $130 per share. By even more pure coincidence, I’d just purchased a block of Apple common stock some 7-8 months earlier for just under $65 per share. (a small block – I’m not Warren Buffett)

    Sure ’nuff, the “professor” began his lecture for the evening with the aforementioned Apple case study.

    Now, I don’t suffer BS in the classroom at all well. Especially BS from the individual[s] I am PAYING to teach me something. And especially, especially, at graduate level. I have no reluctance at all to making it absolutely and abundantly clear to the professor[s] I’ve hired, that I attend college courses for an education, NOT just for the “certificate of authenticity” when it’s over, and damned sure not for an indoctrination.

    So, I stopped the “professor” quite early in his prepared lecture, and explained to him the stock purchase/stock price “coincidences” I mentioned above. And I explained to him that, AS an Apple stockholder, by law, I was therefore an OWNER of Apple corporation (commensurate, of course, with my rather trivial share ownership relative to all the other shareholders. But I didn’t mention that part to the “prof”.)

    And I went on to explain to the “professor” that, as a legal owner of Apple, by (uniquely) U.S. law, I was granted both Rights-to-Proceeds AND Rights-to-Control of MY company. Furthermore, I explained that, given Steve Jobs’ proven performance in doubling that value of MY company in much less than a year, I really didn’t require any “magic formula” to determine Steve’s compensation. As an OWNER of the company, I’d be perfectly willing to just sign Steve’s paychecks, and let HIM fill in his own damned numbers! And continue his employment on that basis for as long as Steve Jobs remained Steve Jobs, and in my employ!

    Suffice to say, the “professor” chatted about other matters and cases – very, very carefully, I might add – for the balance of that class session, and the course.

    (And yes, I did “ritualistically” receive my “certificate of authenticity” from the University at the end of the program of study. It’s down in my basement somewhere, buried under a stack of other papers I think. But I could probably find it in a couple of days if you want proof.)

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      • Thanks, Mr. Quinn.

        As a quick follow-up, I suffer BS from my public servants very, very much LESS readily than I do from my academic hirelings. Emphasis on SERVANTS. I vote. But I’ve also signed my name to two, quite effective, RECALL PETITIONS in my lifetime. Both while I was living in California.

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