5/18/2011 10:59 AM ET|
CEOs got a big raise; how about you?
Coming out of a bruising recession, the average CEO got a 24% pay raise. The average worker? Just 3.3%. What does the widening pay gap mean for investors?
CEOs got a whopping 24% pay hike last year as corporate profits soared with the recession's end, more than making up for two years of declining pay.
The average worker? Not so much. Those lucky enough to still have jobs saw their pay inch up a meager 3.3%, which might have been enough to cover the rising prices of gas and food.
That difference in raises for CEOs and working stiffs is the latest turn in a trend that's been nagging CEO pay critics for years. That's the ever-widening gap between those at the top and their underlings, which is creating a superelite in the U.S. -- and not helping investors or the economy.
Consider these gaps between some of the highest-paid CEOs of 2010 and workers in their industries:
- At Viacom (VIA.B, news), CEO Philippe Dauman got an impressive $84.5 million last year, or 1,990 times what the typical Viacom worker got. This assumes his workers make the $42,500 a year, on average, reported by the Bureau of Labor Statistics as the typical pay for employees in arts, design, entertainment, sports and media.
- Larry Ellison, the CEO of Oracle (ORCL, news), got similarly regal pay of $70 million last year. That was 750 times the $93,470 earned in 2010, on average, by computer software engineers, according to the BLS. Ellison, unlike a lot of CEOs, actually took a pay cut last year, but he still pulled down $1.35 million per week -- a sum it would take the typical computer software engineer more than 14 years to earn.
- John Hammergren, the CEO of drug company McKesson (MCK, news), was paid $54.4 million last year. That works out to $210,000 a day, assuming a normal workweek. That's almost three times the $74,590 that a medical scientist earns in a full year, according to the BLS. Hammergren's 2010 pay was 732 times the average pay for those workers.
Overall, CEOs at S&P 500 companies were paid $11.4 million on average last year, up from $9.2 million the year before, according to the AFL-CIO. In contrast, average workers saw their annual pay go up to $33,121, from $32,049 in 2009, according to the Institute for Policy Studies, a think tank. So the pay gap of CEOs over workers shot up 20% last year, to 344 times an average worker's pay from 287 times.
Back in the 1980s, this pay gap was just 40.
The problem with all this? It's bad for business and bad for shareholders, a lot of business experts say.
Pay gap details are due
To be fair to the CEOs I've listed, you can find many just-as-stark comparisons between CEO and average-worker paychecks at the AFL-CIO executive pay watch website. And those I named might pay their workers more than the average rate. But they aren't saying. The companies mentioned in this article declined to offer specific numbers for their workers instead of the industry average.
The Dodd-Frank financial reforms approved last year will require companies to give investors specific data on the salaries of executives versus those of typical workers. But regulations for that part of the law are just now being considered, and a lot of companies are fighting the release of these specifics.
Viacom did respond that about $54 million of the $84.5 million Dauman earned was a one-off payment linked to a long-term renewal of his employment contract. The company says that more than 80% of his pay is in long-term equity awards aligning his interests with those of shareholders, and that Viacom stock was up 33% last year compared with a 13% gain for the Standard & Poor's 500 Index ($INX).
How the gap is bad for business
Let's take a closer look at some of the problems this growing pay gap represents:
- One big one is that the gains in corporate profits last year that were used to justify those huge CEO pay hikes often came at the expense of workers. Profits soared in large part because of layoffs during the recession.
- Another is simply the sense of unfairness created by the widening gap in CEO pay compared with pay for regular workers. Everyone tightened belts during the recession; everyone worked harder. Why do only executives see a payoff? "People just find this outrageous and unfair, that certain people would be valued so much more than others," says Sarah Anderson of the Institute for Policy Studies.
- Perhaps more important, there's a solid argument that these kinds of huge pay gaps are bad for the economy, say Anderson and other pay critics. One of the founders of modern management science, Peter Drucker, suggested the maximum ratio between top management pay and worker pay should be no greater than about 25-to-1. Any more than that and it's "difficult to foster the kind of teamwork and trust that businesses need to succeed," says Rick Wartzman, the executive director of the Drucker Institute.
To put it another way, when the pay gap is too wide, employee morale and productivity decline, says Brandon Rees, deputy director of the AFL-CIO Office of Investment. Plus, turnover can increase, which is also bad for business. A big part of the problem is that when rank and file pay levels are too low compared with the pay at the top, workers no longer feel like stakeholders in a company. Not only do academic research and analysis by the Brookings Institution bear this out, but we can see it in the real world.
The case of Whole Foods
Though Whole Foods Market (WFM, news) has made exceptions for recently promoted executives, the grocery store chain generally limits the pay ratio between regular workers and top executives to 19. It also gives stock options to workers after three years on the job. Less than 10% of options has gone to executives.
"We have a very egalitarian culture," says Mark Ehrnstein, a Whole Foods vice president. "We believe that when companies have that huge disparity in pay, it creates corrosiveness between leadership and team members. Our focus on creating an egalitarian culture absolutely contributes to the well-being of our company."
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I am sorry but NOBODY deserves $84 mln. in just one year! NOBODY! How the hell do you keep workers morale when you get paid enough in one year to retire like a king?! And your workers have to toil away for 40+ years to retire like poor people if ever?!!!
84 mln. is enough for 28 people to retire with $3 mln in hand! At my current pay I need to work 1400 years to get what that jerk is getting! And my salary is above the average for the country!
I just spoke with an ex work associate the other day.....we were discussing how dysfunctional our ex company was.....she mentioned that she was promised a raise last July.....didn't happen. She ran into the CEO and had a chat with him and mentioned that she was promised a raise but didn't get one.......he said, "don't feel bad, I didn't get one either." She replied....your compensation and my compensation are worlds apart and you know I am a single parent raising two children. She resigned in January.
I'm in favor of pay-for-performance and this includes bonuses if the company is healthy and people meet or exceed their performance goals. However, the CEO and SLT bonuses are so far apart from those in the ranks below. Spread the wealth around....and don't be quick to lay "more people off" while at the same time giving yourself a big bonus Mr. CEO. Let's keep in mind, capitalism and free markets and corporations are not the problem. Greed and lust....make big bucks, spend big bucks.....equals: I need more money! Sinful nature.
havasu46: I agree tv personalities, etc. get paid too much, HOWEVER, their not sticking it to the nation @ large by raising prices or taking govnt bailouts or laying off the average joe workers. These companies lay off people in droves then pay their CEO'S billions it's disgusting.
The banks get bailed out of the mortgage mess & keep on smooth sailing yet the average joe is stuck w/bad credit for years! They're the ones that qualified people who shouldn't have been waving those big beautiful houses under their noses.
That's it. I'm disgusted enough for today.
Want to see future America? Look at Mexico where 45% are in dire poverty and escape the country looking for any job and benefits. Mexico is the dirtiest piece of garbage of a country in the Western hemisphere.
Also, look back to Appalachia and the old South to see poor people. So poor shoes were a luxury. Coal mines and cotton mills and every town was poor, including Atlanta.
Mill villages where the mill owners owned the town, the houses, and the company store...Feudalism. Everyone was poor, except one or two mill owners. Poor towns, dirt roads, poor healthcare, disease riddled, uneducated peoples. Yup, Snuffy Smith was the epitome of the South and Southern capitalism.
What I find MOST distasteful is the “Class Warfare” that the ELITE keep throwing out there. They make it seem that ALL working Americans stand around drooling over what the rich have. They SEEM to believe that EVERY American wants to take what they have or drag them down to where they are but that is NOT true.
For those of you boasting that these CEOs have in any way earned that money, you are WRONG. You are wrong unless you believe that bringing down an entire country and much of the world should be rewarded. Like MOST Americans I could care less how much money you have, I do however care when that money is made not by honest means but off the backs of the working class. When the working class is TOLD they have to make up for the loss of taxes because the ÉLITE feel above that sort of thing. I feel offended when the working class is told they MUST bail out the very companies that tank the monetary system and that is NOT class warfare, that my friends is nothing BUT common sense.
Corporate America, bad for the country and the world!!!!!
With all that is going on in the USA, I believe the government wants to turn us into a 3d world country. With their lack of leadership and self helping themselves to the public money there is no help for the American middle class. Will we revolt like the 3d world countries or will we take back the AMERICAN gevernment?
I would argue that big business wants us to become a 3rd world country, and they have their hands in the pockets of politicians.
Until we, the people, quit voting for Democrats AND Republicans, this viscious cycle will continue. Liberals and Conservatives, quit blaming each other because you're BOTH to blame.
If companies have millions to give to CEOs why can't they HIRE so there is adequate staffing and good customer service? We could end the recession if people had jobs so they could spend money. This would stimulate the economy. It is just that simple.
CEOs would not starve if their compensation was halved or even quartered. People whose unemployment benefits have run out are in danger of hunger and homelessness. Nobody wants charity: people want jobs and those presently employed want to stop doing the work of 2+ people!
The Fed is printing money like a drunken sailor to pay for BIG govt and the excesses of Wall St. The increase costs of food, energy and other essential items (inflation) is a means to finance the MACHINE. So while the oligarchs on Wall St bathe themselves with HUGE salaries and bonuses (buying the influence of your elected officials), the common man foots the bill and is happy to receive the paltry 3% pay raise... Brainwashed by the media and drugged up by the pharms, you trudge along the hamster wheel like zombies. Freedom is but an illusion as you are all slaves and don't even know it.
Poor consumers will equal many businesses closing in the future.
No Medicare or social security means savings must become paramount, not spending. No company pensions will mean more savings, not spending. Rising healthcare costs means drop that internet to buy prescription drugs and pay for that office visit .
Oil and food prices rising means housing has to be cheaper which means less profits for builders.
What the working class right does not understand is that what they do for a living will be gone as workers make less and pay more for gas and food and save for pensions and retirement.
The country will revert back to the days when a pair of shoes was your Christmas present and the internet did not exist. Think about it. All the wealth will gravitate to a handful like in Mexico and the rest of you will be running fruit stands like in Mexico.
Most all of the Millionaries in the USA are either CEO's or working in Politics. In both cases it's the rest of us peons who pay
their wages. Some people were born to live off others and these so called rich bas-ards don't care who they walk over. Most
likely they will get their rewards, as the Bible says, It will be harder for a rich man to get into heaven then for a camel to fit
through a key hole. I love America and it takes all kinds of people to make it the land we love. It's too bad some think the
world owes them a living.
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