If America needed another reason to press ahead with rules requiring corporations to be more forthcoming about executive pay, it arrived recently in the form of a study from the Harvard Business School. Researchers asked ordinary folks: How much more do you think a CEO earns compared to the average worker?
Regular people, being somewhat sensible by nature, reckoned a chief executive officer made about 30 times the average worker — not the entry level, mind you, but the average. Bless their little generous-but-aspirational hearts, that sounded pretty good.
Alas, they low-balled it. Badly. The average CEO doesn't earn 30 times or even 60 times or 90 times. In the United States of America, it's more along the lines of 354 times, with one company at 1,795-to-1, according to the authors. No wonder CEOs make the big bucks, it appears the rest of us weren't even aware of it.
What's especially interesting about the study is not only is executive pay in this country way out of whack but the perception of it is equally lopsided, an underestimate so big it's not found anywhere else in the world. In some countries like Australia and South Korea, people actually high-ball their guess, assuming pay is 41 or 42 times average worker when it's actually less.
That alone is reason for the Securities and Exchange Commission to press ahead with regulations that require companies to disclose this CEO-to-average-worker pay ratio. That statistic was promised by the Dodd-Frank Act four years ago, and the SEC has been slow to come up with exactly how the bookkeeping would work.
How tricky could it be? Well, do you count part-time employees or foreign workers? Do you count everyone or just use a statistical sample? Or do you use average wages in a corporation's particular industry? Uncertainty over such details have allowed critics to make the case that the results will inevitably be misleading and unfair.
The other big criticism is that the whole thing yields a fairly useless number anyway. Will investors make decisions based on this ratio? Will it only cause mid-level employees to feel pretty rotten about their job? Will it simply embarrass chief executives?
Actually, it's hard to say. One thing is certain: It won't single-handedly ameliorate the growing income inequality in this country, a circumstances that is not only causing social unrest but hurting the overall economy. We are in the midst of a historic wealth redistribution — primarily into the pockets of the wealthy.
When the rank-and-file can't afford to buy goods and services, the corporations that produce them are going to suffer. This lack of growth in the lower levels of the pay scale is one reason why the U.S. economic growth rate has been so modest during the recovery. Today, about half the people living in this country are defined as low-income or in poverty, and the gap between the 1 percent and the other 99 percent is the greatest it's been since the 1920s.
Four years to write regulations is enough. The rules proposed more than a year ago need to be finalized by the SEC by the end of the year if not sooner, as the agency's chairman has promised. That people continue to think so wishfully of their CEOs is reason enough to better educate the public about the sad reality.
Perhaps the Hamptons set will be a little embarrassed and consider the plight of their workers before accepting another bonus or stock option. Maybe investors will think twice about buying into companies like Activision Blizzard, maker of the "Call of Duty" video game, which paid its CEO $64.9 million last year. Or consumers will think twice about buying products from companies that treat their CEOs like kings but their workers like paupers.
Sometimes a little moralizing is a good thing. The U.S. ought to be a land of opportunity, not a return to feudalism. A whopping 27 more Americans made the list of billionaires this year, according to Forbes. In the last year alone, Bill Gates' wealth rose $9 billion to $81 billion, which is a mere 88 times the entire gross domestic product of Somalia. We're not asking CEOs to give it all back, just to admit to how lopsided it's all gotten.
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