CTIR Episode 97: CEO Pay
Introduction
 FB.
 Post Human Series.
Why talk about it?
 Slows news cycle.
 Recent Mises article.
Summary
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Statistics
 According to the AFL-CIO, CEOs out earn the average worker 331:1.
o But this is CEO’s “of an S&P 500 Index company.”
o However, there are nearly 250,000 CEOs in the United States.
 But there is a gap. The average CEO in the US earned a salary of $178,400
in 2013 compared to $46,440 for the average worker (both exclude benefits).
o This is according to a report released by the Bureau of Labor
Statistics.
o The average annual wage based on occupation in 2013:
 Surgeons = 233,150.
 Psyhiatrist = 182,660.
 Dentist = 168,870.
 Petroleum Engineer = 149,180.
 Al Jazeera article:
o “In 2013 the average American CEO was paid 331 times what the
average worker in the United States earned and 774 times what fulltime minimum wage workers made, according to a new analysis
released Tuesday by the AFL-CIO, the nation’s largest labor union.”
o “Chief executives took home on average a haul of about $11.7 million
in 2013, while the average employee earned $35,293.”
 Examples.
o James Skinner, CEO of McDonald’s made a total of 27.7 million.
o Michael Duke of Walmart made $20 million.
o Larry Merlo of CVS made 31 million.
o Larry Ellison of Oracle made 78 million.
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o Tim Cook of Apple total compensation was 378 million in 2011 but
the market capitalization of Apple hit a record 622 billion (the most
valuable company in US history at the time).
 But then there is Costco’s CEO who made total of 4.83 million
in 2012.
 It’s stock price has doubled since 2009.
o Same Al Jazeera article:
 “To put those numbers in perspective, a minimum wage
employee would have to work 1,372 hours to make what Duke
earns in a single hour in his job at the helm of Walmart.”
o Other examples.
 Since 2001, the president of the US earns a 400,000 annual
salary with another 200,000 of other income.
 The average member of Congress makes about 174,000 a year
plus benefits.
 In 2014:
 Robert Downey Jr = 75 million.
 The Rock = 52 million.
 Ben Affleck = 35 million.
 Will Smith 32 million.
 Floyd Mayweather 105 million.
 Lebron James 73 million.
 Tiger Woods 62 million.
This is different from the past as well.
o In the early 1980s, a gap of only 42:1 existed.
Its also important to note that 9.7 years is the average length for CEOs of
S&P 500 companies. That number is the highest average tenure.
o Studies show the best length of time is from 5 years to even 15 years.
They also don’t generally move up from being a CEO.
o The Delaware paper cites several studies indicating that relatively few
chief executives land new top jobs elsewhere. One study, a 2011
analysis of roughly 1,800 C.E.O. successions from 1993 to 2005,
found that less than 2 percent had been public-company chief
executives before their new jobs.
Two-thirds of Americans think that top corporate executives and CEOs are
paid too much, and few Americans think they will ever enter the ranks of the
highest paid, according to a new HuffPost/YouGov poll.
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o The 2014 poll was conducted as part of a new Huffington Post project
called Pay Pals, a database of the salaries paid to top executives and
board members at every Fortune 100 company.
o According to the new poll, 66 percent of Americans think the pay of
top corporate executives and CEOs is too high, while only 18 percent
think their pay is appropriate. Two percent said that executives' pay is
too low.
o A majority of Americans in the new survey from across the political
spectrum agreed that executives' pay is too high -- 79 percent of
Democrats, 61 percent of independents and 58 percent of
Republicans.
o And even among Americans in the highest household income bracket
in the poll -- those making more than $100,000 a year -- 65 percent
agreed that executives' pay it too high.
 According to a Rasmussen poll in 2009, about 30% of respondents said that
government should limit pay for athletes and movie stars.
Economics
 Defenders of the current system argue, however, that executive higher
salaries allow firms to recruit the best candidates, who are then given
incentives to produce the best results for the company. In the end, the
performance of top-caliber CEOs benefits both shareholders and employees.
o Another body of research disputes that thinking. A review of
executive pay done by J. Scott Armstrong, a professor at the Wharton
School of Business, and Philippe Jacquart, an assistant professor at
L’École de Management de Lyon, found no correlation between pay
and performance of top CEOs.
o “Higher pay fails to promote better performance,” they wrote in their
paper in Interfaces, a peer-reviewed journal on organizational
research. “Instead, it undermines the intrinsic motivation of
executives, inhibits their learning, leads them to ignore other
stakeholders and discourages them from considering the long-term
effects of their decisions on stakeholders.
 Also, many chief executives do not suffer the consequences when they prove
themselves poor stewards. For instance, Jamie Dimon, CEO of JP Morgan
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Chase, earned a 74 percent pay raise in 2013, the same year that the
company paid $20 billion in fines for regulatory wrongdoing and barely
escaped criminal penalties.
History
 From the late 1940s to the late 1960s, American bosses were paid salaries
like other professionals.
o As a note, the marginal federal tax rate during the 1940s was
anywhere from 80-90%.
 But in the 60s, a few companies introduced performance related pay and it
took off.
 Companies began to make the managers shareholders by providing them
options on large numbers of shares if they hit certain performance targets.
 In 1993, when Congress capped the tax deductibility of executive pay at
$1m, it allowed US corporations to deduct performance-based pay –
including stock options – from their federal income taxes. The companies
use the tax-deductible stock options to lower their IRS bills. That, in turn,
means that those rich executive bonuses turn into government subsidies.
Solutions
 The Ruling Class.
o http://www.msnbc.com/morning-joe/watch/the-highest-paid-ceos-inamerica-are...-451465283738
o http://www.dailymotion.com/video/x2dt44j_robert-reich-advisesregulation-of-ceo-salaries_news
 Libertarian.
o Non-aggression principle.
 Aggression against another is immoral.
 Aggression is the initiation of the use or threat of physical
violence against another.
 Threat is probable imminent action.
 Another is a human and his or her property.
 Self defense is a reasonable or proportional response to
aggression.
 The Golden Rule.
o Treat others the way you would want to be treated.
Conclusion
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
In Episode 97 of CTIR, I discuss CEO Pay. Specifically, I analyze whether CEO’s
actually make that much money compared to the average worker. I also describe
the history of CEO pay and how government contributes greatly to the large wage
gap.
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Sources:
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https://mises.org/library/myth-ceo-pay-and-greed
https://www.aei.org/publication/the-average-us-ceo-last-year-made-only-178400about-the-same-as-a-dentist-and-got-a-raise-of-less-than-1/
http://america.aljazeera.com/articles/2014/4/15/executive-paycompensationceoworkerratio.html
http://stateofworkingamerica.org/chart/swa-wages-figure-4-ceo-workercompensation/
http://www.businessinsider.com/apple-just-became-the-most-valuable-uscompany-of-all-time-2012-8
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http://www.businessinsider.com/debunking-three-of-the-biggest-myths-about-ceopay-2012-9
http://www.economist.com/news/business-books-quarterly/21627553-should-ceosreally-be-paid-less-moneybags
http://www.forbes.com/sites/jeffreydorfman/2015/03/03/blue-collar-worker-pay-isactually-gaining-on-ceos/
http://www.latimes.com/business/hiltzik/la-fi-mh-the-right-way-to-measure-ceopay-20150501-column.html#page=2
http://www.bloomberg.com/bw/articles/2014-07-22/for-ceos-correlation-betweenpay-and-stock-performance-is-pretty-random
http://www.huffingtonpost.com/2014/02/13/executive-pay-poll_n_4780170.html
http://www.rasmussenreports.com/public_content/politics/general_politics/march_
2009/30_say_government_should_limit_pay_for_athletes_and_movie_stars
http://www.usnews.com/news/articles/2014/04/04/members-of-congress-makemore-than-most-but-not-enough-for-jim-moran
http://forbestadvice.com/Money/Taxes/Federal-TaxRates/Historical_Federal_Top_Marginal_Tax_Rates_History_Graph.html
http://www.forbes.com/pictures/fimi45ellli/32-millionstudios-still-/
http://www.forbes.com/pictures/mli45emkdh/1-floyd-mayweather-14/
http://www.bbc.com/capital/story/20130531-the-executive-accountability-myth
http://www.washingtonpost.com/blogs/on-leadership/wp/2014/04/16/how-long-istoo-long-to-be-ceo/
http://www.nytimes.com/2012/09/23/business/ceos-and-the-pay-em-or-lose-emmyth-fair-game.html?_r=0
http://video.cnbc.com/gallery/?video=3000269743
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http://www.bloomberg.com/bw/articles/2013-06-06/costco-ceo-craig-jelinek-leadsthe-cheapest-happiest-company-in-the-world
http://www.huffingtonpost.com/2013/11/19/reasons-love-costco_n_4275774.html
http://www.msnbc.com/morning-joe/watch/the-highest-paid-ceos-in-america-are...451465283738
http://www.theguardian.com/money/us-money-blog/2013/dec/03/tax-breaks-forceos-pay-for-million-dollar-salaries
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