Fact or Fiction?

It’s well documented that CEO pay is an outrageous 300 to 400% times the average worker. After all, you can easily Google that “fact.” It’s widely reported and used by some politicians.

Problem is it’s not a fact at all, it is intentionally misleading.

That percentage only applies to many of the CEOs in the largest companies making up the S&P 500. Together those companies employ only about 17% of the US workforce. The average pay for all CEOs is less than $400,000 a year, not tens of millions.

In addition, pay is not pay, it’s total compensation. 60% or so of the S&P CEOs compensation is in the form of stock which is at risk and whose value can go both up and down.

Let’s look at those CEOs who do make millions. Pick any company and see the relative impact on average workers. I did the numbers for Verizon. If its CEO’s entire compensation were given to workers, each worker would receive a raise of 0.043% or $0.073 per hour. That’s four hundredths of one percent and seven cents an hour.

The fact is CEO pay is quite irrelevant to workers and has little to do with inequality.

Where there is legitimate criticism of publicly traded companies is the short-term focus on EPS and the measures some companies take to bolster earnings, such as buybacks, layoffs and the like. The only legitimate way to grow earnings is to increase revenue and manage costs on a steady, ongoing basis.

On the other hand, let’s not forget that every American with a pension, 401k, IRA or any similar plan or with investments other than cash depends on the growth in stock prices for their current or future security.

In other words, we all depend on the success of American companies not only for jobs, and the products and services we need, but for most of us, our financial security too.

Those politicians who seek to make corporations a scapegoat are not telling the truth, nor do they appear to look at issues with a holistic view.

2 comments

  1. Fact: My wife is the CEO of our house, I am just the CFO. Neither her nor I have ever made millions. I am sure it is the same for every mom & pop shop on main street USA or family run farm. Some farms have millions tied up in overhead and equipment. The claim is very much cherry picked to skew the data.

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    1. A follow up: “A May 2019 report from The New York Times indicated that the Tesla CEO received stock options worth nearly $2.3 billion in 2018 — but the electric-car maker disputed that claim, saying Musk “actually earned $0 in total compensation from Tesla in 2018.”
      At the beginning of this month, Elon Musk tweeted that he is selling off all of his houses because of personal cash flow problems. He is worth over $27 billion on paper, paper which he can’t sell yet due to the compensation package restrictions.

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