Tax Lawyer's Blog

I am getting awfully tired of the smug pedantry of members of the intellectual elite, most of whom have never run a business in their lives, squawking about the ratio of CEO pay to rank and file employee pay.

Jay Williams of the Baltimore Sun says it hurts America that CEO’s at some major American corporations get paid 262 times an hour more than the average worker (emphasis added):

In the first place, pay disproportions of this magnitude may serve to undermine worker morale and motivation and thereby further America’s already growing decline in world competitiveness.

In addition, the unethical nature of pay inequity at this scale could undermine employees’ communal sense of obligation and duty — why should workers push themselves to high standards for, say, $15 to $25 dollars per hour while watching their companies’ CEOs and other senior managers compensate themselves at as much as $5,000 in that same hour?

Unethical? Does Mr. Williams think it’s unethical that George Clooney gets paid $20,000,000 for a movie when the key grip makes only $30 an hour? Or that the President of the United States makes many multiples more than the West Wing maid?

And why do I get the feeling Mr. Williams draws the pay inequity line a hair above the ratio of his salary to that of the janitor at the Baltimore Sun?¹

The excessive CEO pay “scandal” is a media-created one. Liberal members of the press, like Mr. Williams, are personally offended by the fact that CEO’s get paid hundreds of times more than their front line employees and, therefore, they assume that those front line employees are likewise outraged by it.

They aren’t.

Workers who make $15 bucks an hour don’t give a flying rats’ tookus how much the CEO of their company gets paid and, for that matter, they don’t care that Lebron James makes 300 times what his towel boy makes.

That’s because, unlike Mr. Williams, these common folk are smart enough to realize that wholesale reductions in CEO pay won’t change their lives a brass farthing.²

Let me illustrate with an example:

Jeffrey Immelt, the CEO of General Electric, was paid $12,600,000 in 2009. Serious cabbage.

Now, let’s say Mr. Immelt cut his salary in half in 2010 and redistributed the wealth in the form of a raise to GE’s rank and file employees.

General Electric employed 300,000 non-management level people in 2009. Divvying up Immelt’s pay cut of $6,300,000 among these workers gives each rank and file worker an additional $21 a year ($6,300,000 divided by 300,000 = $21).

The work year consists of 2080 hours (260 work days x 8 = 2080). The additional $21 freed up for employees as a result of Immelt’s pay cut gives each rank and file GE employee a whopping 1 penny an hour raise ($21 divided by 2080 = 1 cent).

Pay inequity is an issue that has been trumped up by radical idealogues to attack big business. Their goal is to convince middle-class workers to scapegoat their wealthy employers as the cause of their financial woes.³

Don’t take the bait.

If the shareholders and board members of a corporation think it’s appropriate to pay their CEO $12,000,000 a year, then their CEO is worth $12,000,000 a year.

I trust corporations to set their own corporate pay structures infinitely more than I trust disinterested central planners, most of whom lack real world business experience, to set their pay structures for them.

You should, too.

Footnotes:

¹  Mr. Williams can prove that large pay differentials bother him by giving the janitors and the maids at the Baltimore Sun a portion of his yearly salary.

²  No matter how warm, fuzzy and noble it makes Mr. Williams to call for them.

³  The difference between these wealthy employers and Mr. Williams is that the former actually employ and pay people. The true pay inequity is being conducted by Mr. Williams and all of those intellectual elites who employ nobody and pay them nothing. Their pay differentials are infinite.

Related Posts:

• Executive Pay Limits: A Form of Scapegoating
• Senators Boxer & Webb Propose 50% Money Grab on High Paid Executives
• A Bonus Tax in America?
• Class Warfare: The Executive Compensation Canard

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