Barbara's Blog: Fire the Overpaid CEOs

November 09, 2005

Fire the Overpaid CEOs

The New York Times reports that the average CEO pay is now $10 million a year, up 13 percent from 2004. Raise your hand if you got a 13 percent raise in the last year. Not a lot of hands, is my guess. While the CEOs are facing painful decisions about whether to buy a third home in Aspen or upgrade the private jet, the average household income declined, health benefits are wasting away like anorectics, and as for pensions – well, that’s an archaic term you can still probably find in a dictionary.

Even a few CEOs have started speaking out about their obscene levels of pay, and the Conference Board – a pro-business research group – admits that CEO pay has become “de-linked” from performance, meaning that the company may tank but those nearly million dollar monthly paychecks keep rolling in, to be followed by platinum parachutes.

Of course, everybody’s pay is increasingly “de-linked” from performance these days. The latest reports show productivity rising while wages stagnate or decline. Meaning that the average worker works harder and gets more done for less money all the time.

The domestic consequences of ballooning wealth at the top and negative assets everywhere else (the average household’s savings rate slipped below zero this year) are well known: Look around you. We are becoming a society divided between the gated communities on the one hand, and the trailer parks and tenements on the other. For those of you still clinging to your niche in the middle class – lots of luck! Even if you’re making $50,000-plus a year, it can be a pretty short slide from getting a pink slip to putting on a blue vest at Wal-Mart (at $7 or 8 an hour.)

But it’s the international consequences of all this corporate cat-fattening I want to consider here. Word is – and you can find this particular word on any business page – that we average Americans don’t have what it takes to compete with the rising economies of Asia. Thomas Friedman lays it out in his bestseller The World Is Flat (and pardon me, Tom, if I oversimplify): While the youth of China and India entertain themselves with engineering and computer science, our kids can’t tell the difference between a prime number and a prime minister, our college students major in beer pong. Plus, of course, they all grow up expecting to wallow around in front of their flat screen TVs and get health care when their hearts give out from sheer inactivity. At least that’s the elite stereotype of American workers – too lazy and dumb for a globalized world.

I share Friedman’s concern about our teenagers’ allergy to trigonometry, inability to speak Mandarin and similar shortcomings. I think learning should be fun and that higher education should be free and available to anyone at any time of life.

But if you want to see what’s holding back the US economy in the face of the Asian “threat,” I’d suggest you look up rather than sideways or down. No other country comes close to pampering its CEOs the way we do. Here, CEOS earn over 400 times what the average worker earns. In Japan, the ratio is about 20 times more, in Germany, 14 times more.

What exactly do American CEOs do for their money? As far as I can ascertain, no one knows for sure. In Bait and Switch, I quote a top corporate PR guy, Jim Lukaszewski, as loyal a servant to the powerful as you could find. What he said to group of PR people was: “All of you have been on the [top] management floors of your company. Notice how quiet it is up there? Because no one is doing anything there. Oh, there are a few meetings now and then…”

So here’s my solution to the “flat world” problem – a guaranteed way to make American companies lean, mean, and competitive with all those bright young entrepreneurs in Bangalore: Fire our CEOs and replace them with undocumented Mexican immigrants willing to work for $6 an hour.

At $10 million per CEO, the savings will be in the trillions. And whatever it is CEOs do will continue to get done just fine.

In fact, anyone with the cunning and guts to cross the border from the south probably has leadership qualities beyond anything you can acquire at Harvard or Wharton’s b-schools. I’m willing to be a little more generous, in fact. Let’s pay our new immigrant CEOs a living wage, meaning somewhere in the neighborhood of $15 an hour, and give them the right to house their families in those spacious tenth floor corner office suites.

November 09, 2005 in Current Affairs | Permalink

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Comments

I like your blog..I hope you up date more.

Posted by: bygraves | November 14, 2005 at 05:22 AM

re: the thomas friedman point.. if the WTO and other 'free trade' agreements were fixed to include fair labor laws, a lot of these problems would not be as drastic as they are today but that would take a change in leadership to one that hasn't suckled at the corporate teat.

also, being from india, i have to tell you that the proportion of entrepreneurs to the poor and destitute is still a miserable ratio. in fact if the corporate-side trends continue in the US, that's what might happen here too.

Posted by: almostinfamous | November 14, 2005 at 10:07 AM

Flippant. completely ruins support for your central argument--that ceos get paid "too much". CEOs are often extremely sharp, with difficult to substitute managerial skills. Actually, it surprises me that after all your "research" you would be this clueless. There is a meritocracy in this country, ya know. hard to get top jobs in general. you don't usually inherit them. Always exceptions, but pick anyone out of the hat--michael dell, steve jobs, etc. could you do their jobs? nope. any credibility you may have had went right out the window. you are a left-wing coulter. big deal.

Posted by: tr | November 15, 2005 at 04:54 AM

Barbara,

Actually, your sights are in the 80% zone with everybody else. Look to the other 20% that is submerged below sea level and you will find the majority of the cause & effect there -- an economic iceberg.

I have found that my good friend Bob Nardelli of Home Depot is a good stick to measure by. His annual salary is around 0.01% of Home Depot's annual sales. His bonuses maybe the same or less than that percentage if he adds more value to the company as so deemed by the board of directors.

Per Yahoo Finance, HD has risen to $76.86B in annual sales. When Bob first took over the helm of HD, HD's sales were in the $50Bs... it looks like Bob is adding much value at this vantage point.

And as I predicted, his salary is still tracking the annual revenue at $ 7.75M per YF: 76,860,000,000 * .0001 = $7,686,000. Now let us play with these numbers a bit...

If Bob was working for a $1B company, his compensation would be $100K if we applied the same percentage. It sure looks a bit low for all that responsibility, doesn't it? How about if Bob was working for a $500M company, his compensation would be $50K, which is even more ridiculous. Therefore to evenly weigh the size, responsibility, & compensation, the compensation committee must be applying a sliding scale which decreases the percentage by the number of figures in the overall annual sales achieved.

So, for a $5M company Bob could expect a 2% salary of $100K... for a $500M company Bob could expect a 0.1% salary of $500K... for a $1B company Bob could expect a 0.1% salary of $1M... but when you step into the eleven figure area, the scale slides to 0.01%.

If this sliding scale is accepted as the norm, then how could we estimate what the President of the United States should be compensated? Currently, the GDP of the US is $10 trillion, plus. Would a 0.01% salary of $1B be a bit much? Or, would a 0.001% salary of $100M be more appropriate? Talking about corporate welfare... our President's compensation is at 0.000000025% of GDP -- a whooping $250K... whoopee! No wonder we get the likes of GWB more often than not. Maybe we need to have a discussion with the compensation committee of the United States.

No wonder these guys never focus on DOMESTIC issues--- IT DOESN'T PAY! Instead... have fun blowing up some foreign country or saving a foreign country from ravages & savages -- SPORTS! To add more injury to insult: how about the salary of $157K for Congressmen & Senators?... that's a whopping 0.0000000157% of GDP. NO WONDER we have the Wisdom, Values, & Ethics, mainly of FROGS that just sit in the MUD!

Could you imagine any salesperson working commission only using any of these sliding percentages in the private sector?

How about for employees? Well, you might have something there... even an employee working for a $1M company wouldn't work a 0.1% salary of $1,000, not even a 1% salary of $10,000 --- that's at the poverty level. A Living Wage would be more like a 2.5% salary of $25K or more.

Therefore, all things considered --- maybe that's where we are heading with the China Syndrome... nothing personal to the Commonwealth, but it's strictly by the sliding scale numbers!

... And they work out perfectly! 260(5dwk) * $0.50(pph) * 10(hpd) = $1,300 -- that's the formula!

If I, the CEO, salary is based on a sliding scale percentage of sales, so should be my staff & worker bees! Or was it really what the Compensation Committee suggested that are beholding to the Board & the Shareholder's interests?

The fundamental key to the G8 Nations' demise , which we are a major part of, is the GREED of wealthbuilding by shareholders at the complete expense of the societies that nurture & protect them.

Does that sound like a traitor to you?

"Don't worry... I, Mr. Bad Example, will be safe behind the barricades & Ninja security guards that surround & protect my compound and my lovely castle made of Gold.

I Fear not for the valley of... I have my Bible and I am a Christian!"

Cheers!
Clap

Source: UBE Forum, http://www.1-2-free-forums.com/mf/bogoloco-post-16.html#16

Posted by: mmasters | November 15, 2005 at 05:59 AM

Barbara,
by chance, I came across your new blog while seaching the internet for information on you and your work.

I am currently reading (and am about half way through) Bait and Switch, and quite enjoy it. Very well written, as are your two posts here in this blog.

Blogs usually tend to start off strong, but bloggers soon realize how much work is involved in keeping them going, and they often fade away.

I hope this will not be the case with you, as you definitely are one of the more interesting writers, and I look forward to future entries here.

Take care,
Paul

Posted by: Paul | November 20, 2005 at 12:21 PM

There's no link to the New York Times article you mention, but when you write that "average CEO pay is now $10 million a year, up 13 percent from 2004" you must of course be referring to only a certain group of CEOs and companies - not CEOs as a whole.

Of course, it's not really for you to decide whether someone's worth such large wages - but it does seem that shareholders think that it's better for their business to employ Jack Welsh figures rather than lesser options.

Also, it's really a nonsense to think that high-paid CEOs spend all day thinking about corporate jets. I suspect a good deal of high paid CEOs are getting to for for 6 or 7 in the morning and working evenings.

Posted by: Alex Singleton | December 02, 2005 at 01:18 AM

Wow--6 or 7 in the morning and working evenings? Sounds like your average low-income worker desperate to make ends meet to me. Let's remove our heads from the clouds for a minute, shall we? The bottom line is that no CEO can rightfully earn thousands of dollars per hour while subordinates gradually hit poverty class and others are laid off. That's greed at its most blatant, and there's simply no justification for it. (Please see article from _Reader's Digest_.) http://www.rd.com/content/openContent.do?contentId=19209

Posted by: Laurie | December 17, 2005 at 06:33 AM

I have been working America’s "2nd" largest bank and i have seen lot of CEO and high chair persons getting paid money that is lottery to most middle class people. Also in other hand, at my work place we don't get the most necessary items that we need in order to work such as staples or even a name tag and some of the basic office supply. So the math doesn’t add up. When someone is getting paid millions where we are working under low-budget / low supply department. So the main idea here is to suck up all the money from lower level departments and show share-holders and other people. Just how well the production has boosted since Mr. CEO has been arrived. PURE POLITICS.

Posted by: jake | January 19, 2006 at 06:12 AM

It's too easy to point at finger at Ms. Ehrenreich and say: oh you're so glib & crass. These poor, poor CEOs add cajillions in "value" to their companies, and they deserve every penny they can get their greedy mitts on.

PLEASE! As Ms. Ehrenreich also points out (and has been documented in gov't labor stats, but apologies for not having the sites available), USA CEOs are making way more than their counterparts in any other country in the world.

I agree that the Bill Gate'es & Steve Job'es of this country are wonderkinds who created a lot of jobs for others (and money for various coffers). While I also agree that there cannot be one, simplistic sliding pay scale for what CEOs make, I also posit that the vast majority of big company CEOs are making far too much for the value they bring to their companies.

C'mon!! NO ONE is worth $56k per hour (or whatever). That's right: NO ONE!! I posit that b/c of these huge, wasteful CEOs salaries & buy-outs at firing time, we, the people, are paying the price - in terms of overcharging for goods & services, less access to affordable health care (e.g., it's not the doctors getting overpaid, so much as the CEOs of health insurance companies & pharmas & associated health care industries).

Not to mention the insane pay-outs that some CEOs get when they are fired b/c they "failed" in their jobs, did not make substantial improvements in their company & may have contributed to the company's decline. Witness Carly Fiorina (apologies if I've misspelled her name) & what she got upon leaving HP. Many felt that she did a poor job. Why is she, then, so "deserving" of a humongous pay-out when she is fired?? As an HP stockholder, I do NOT agree with that approach & voiced it in as many ways as I could.

I simply "don't get" why some people feel compelled to support & endorse this level of corporate greed run amok. What? Do they endorse it b/c they believe that some day they might, themselves, claw their way to the top of the heap?? Get real, folks!

And there's loads of other stories of corporate greed run amok - such as Ken Lay, Jack Welsh (yes, the vaunted & venerated Jack Welsh - just go out & read about his insane perks that he negotiated for himself both while working for GE & upon his retirement) & others. These are not gods to whom we should bow. They are mere mortals who definitely deserve higher salaries & good perks. But let's have some perspective here.

In the mid-1960s this country was doing very well in terms of corporate growth & the GNP, and the average CEO only earned about 20 to 30 times more than their average wage-earner. And guess what? Most of those corporations were able to provide PENSIONS and other good, health care benefits to their retirees. Of course, those same companies have, of late, been rapidly renigging on providing those same pensions and health care benefits to their oldest (and most vulnerable) retirees.

I know b/c my father worked for such a US company that has now stopped his pension & health care. Fortunately, my parents have a reasonably healthy nest egg to tide them over, but what if they didn't???

For shame to the big corporations who could do so much better. And wake up to those of you who appear to believe that it's whining, lazy liberals who have some sort of "problem" if you can't "make it" in today's world. I guess my 85 year old father, who has Alzheimer's, should get a job a Wal-Mart????

Sign me,
Mad as Hell and Trying Not to Take It Anymore

Posted by: anonymous | January 23, 2006 at 11:23 AM

wow.
I think a little bit of history is called for here.
If in 1960 a CEO was earning 40x his lowly shopfloor worker's pay - just what the hell happened that deserves him a whopping 400 or 500x (or more) than that, now?
In the late 1920's Babe Ruth made it all the way up to 75k a year (briefly).
Did that bring him into the stratosphere (in 2006 dollars) of a Randy Johnson, a Barry Bonds or a (mercy!) A-Rod? Hardly.
Even good old Henry Ford was a bleepin' philanthropist comparitively speaking - his vision of lowly workers making the kind of money that enabled them to consume at a healthy level.
Remember - once they bought the model T he wanted them to be able to afford...they were free to grab all the whalebone corsets, victrolas, zoot suits and other goodies that their wages could buy.
And while I'm on the subject - just what the hell is so sacred about a shareholder, anyway? First of all...what percentage of the population do they represent? (excuse me while I rush out and invest my disposable nickels and dimes.)
Investment doesn't create wealth anymore. It intercepts it. Where did the idea of job creation go? Mcjobs are not jobs. They are the weirdest sort of welfare going. They are alms for the poor.

Business doesn't budge in any direction without kowtowing to the shareholder...who couldn't give a good damn about business ethics, sustainability, or any other socially responsible plan.
After the robber barons got kicked around a little, America finally grew up.
Just consider what will happen in the next few decades when energy costs blow our hydrocarbon economy to smithereens (while everyone is still sitting around waiting for hydrogen or some other "technology" to kick in.)

I don't suppose anyone would give a damn what a Bill Gates earned, if a McJob paid $15/hr, health care was universal, grads were up to a $25 average, and post-grads maybe double that. This of course is not the case. And while a small minority whistle their way past the taxman, the rest of us deal with a social fabric shredded for the good of the few. (needles and thread, anyone?)
I think our sacred cow has developed a bit of bovine madness. Free enterprise has become infected with a most insidious disease.
1984 came and went...and while we all celebrated that the Orwellian nightmare didn't happen after all...this Brave New World infotained itself straight into bedlam. (pass the soma, please.)

Posted by: JP Merzetti | May 16, 2006 at 05:43 AM

hmmmm... This brings to mind the proverb "Those who know do not speak, those who speak do not know."

cheers

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