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They can be. Depends on the company.
Is Steve Jobs 300-400 times more valueable to Apple than the guy at the mall who sold me my iPhone? I think so.
Yes
No
By David R. Francis / March 15, 2011
Boston
There’s something missing in the Washington political scene – a genuine populist, a prominent politician persistently pointing out a decades-long drift of income and wealth to a tiny fringe at the top.
Maybe this person should be organizing a peaceable march on the Washington Monument to draw attention to today’s extraordinary distortion in the American economy. After all, the concentration of wealth in the United States is more extreme than the much-observed build-up of wealth in Egypt that helped lead to the recent revolution.
Rich are richer, poor are poorer
Here are some facts:
• The richest 1 percent of Americans took 23.5 percent of all the country’s income in 2007. In 1976 they got only 8.9 percent. Gross domestic income was $14 trillion in 2007.
• The lowest fifth on the income ladder saw a decrease in income of 4.1 percent between 1979 and 2008. In the same period, the incomes of the top five percent increased 73 percent.
• The richest 1 percent of US households in 2007 owned 33.8 percent of the nation’s private wealth, more than the combined wealth of the bottom 90 percent.
• The Forbes 400 wealthiest Americans own about as much wealth as the poorest 50 percent of American households.
Many of these facts are from a “Working Group on Extreme Inequality,” formed in 2007, a coalition of groups concerned about poverty and unequal opportunity, and the “dangers” of concentrated wealth and power. It gives extensive resources online, but my impression is that niche websites and blogs are paying more attention to this trend to the top than conventional media, and certainly more than the politicians in Washington who are so dependent on campaign funds from the prosperous. Maybe there’s another economic similarity between the US and Egypt. Certainly the state-controlled media in Egypt paid little attention to the growing wealth of the elite there, though popular social websites did.
Not about envy, but fairness
Now a good populist should not be appealing to a human sense of envy. Rousing envy could be damaging. Even the poorest Americans are generally far better off than the poorest 20 percent of Egyptians with an individual income of less than $2 a day. And Americans are, thankfully, remarkably tolerant of income differences.
But an appeal to an innate sense of fairness might have some political clout, despite inevitable false charges of socialism or even communism. It is the free enterprise system that after all allowed the massive ac ulation of riches in recent decades. So the extremely well-to-do should be paying more to assure a worthy capitalist system is maintained in a healthy state, benefiting the bulk of citizens more generously.
The dangers to such income inequality should be obvious, but Washington is a cool climate for populist politicians. We need someone who'll make it tough for Congress to coddle the rich.
Right now the politicians and press in Washington are obsessed with the challenge of the huge budget deficit and ac ulating federal debt, so the climate for populism is cool. Vermont Senator Bernie Sanders is probably the only major politician who regularly speaks on issues of economic inequality with a populist flair.
Obama's tax proposal not enough
President Obama in his proposed new budget mildly calls for eventual tax increases for upper-income individuals making more than $200,000 a year and couples who earn more than $250,000, letting expire the Bush tax cuts for the rich. He’s also proposing to raise slightly the tax rates for corporate dividends and capital gains. This change wouldn’t take effect until 2013 and would only affect those above the $200,000/$250,000 threshold. It would not hurt most of the middle class, because the top 10 percent of Americans own 90 percent of all US stocks, bonds, and mutual funds, while the top 1 percent control 51 percent.
Nor does the proposed budget raise estate taxes; it merely “resets” them to 2009 levels. Raising them would be another way to stop or slow the growing concentration of wealth – and to pay for deficit reduction.
The economy thrived decades ago when estate taxes and income taxes on the rich were far higher. Though the rhetoric of conservatives maintains a boost in taxes on the rich now would clobber the economy, it is hard to imagine why it is so different now than in the 1960s or 1970s.
Are CEOs really 300 times more valuable?
When this writer attended annual gatherings of the CEOs of the nation’s biggest corporations in the 1960s, they were paid about 30 times the wages of their lower-paid workers. Today’s corporate chiefs are paid around 300 times the wages of their low-paid workers. Are today’s executives really ten times brighter and more able than their counterparts were 50 years ago? Common sense says no. They have merely managed to persuade members of corporate boards that they deserve fantastic pay. Potential members are unlikely to get invited to join a board by the CEO if they have a reputation for toughness on pay. And CEOs tend to mistakenly measure their own individual worth by their level of pay.
By the way, some hedge-fund managers that received hundreds of millions in compensation for amazing returns on their investments in recent years are being charged now with cheating – receiving insider information.
So an eloquent populist in the nation’s capital, by highlighting the growing concentration of income and wealth, could make it politically embarrassing for conservative members of Congress to continue coddling the rich.
http://www.csmonitor.com/Commentary/...t-paid-workers
David R. Francis was a longtime Monitor economics reporter and columnist.
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They can be. Depends on the company.
Is Steve Jobs 300-400 times more valueable to Apple than the guy at the mall who sold me my iPhone? I think so.
+1
There are all sorts of angles to approach this from.
One could argue that a CEO doesn't have an upper limit on value (flameproof suit on.......)
IMO it's immaterial whether they are 300 times more valuable or not - they might well be (especially since shareholder value is the be-all and end-all of corporate performance, a CEO with creative accounting skills who can show high profits may be 1000 times as valuable as other employees). However, on the flip side, CEOs certainly aren't held 300 times more accountable than employees - and that's the problem with the corporate set-up.
If I'm a CEO, my biggest payoff is in terms of stock options and bonuses. If I boost my firm's performance in the short term I can make a massive amount of dough. The system encourages me to seek short-term upside, even if it means taking greater risk. The downside is negligible - if my risk doesn't pay off, I get a handsome severance package when I'm fired. But I won't need to return the millions of dollars that I made the previous year due to my risky tactics paying off.
That is why many CEOs, especially in the financial sector, take risks. The typical CXO's shelf life is short, so he tries to cash in early. He doesn't need to consider the long-term benefit of all the other stakeholders of the firm (customers, shareholders, employees etc).
What downside do you think Richard Fuld (ex-Lehman CEO) had to bear when Lehman went belly-up? He testified before a few committees and was named worst US CEO of all time by CNBC. Did he lose his shirt for sinking his firm and all its stakeholders? No, he kept his nest egg, transferred his Florida mansion to his wife (to avoid losing the house in legal action), and has now joined a securities brokerage firm to continue the charade and make more money.
LOL at anybody who thinks that the "free-market" has anything to do with CEO pay.
What determines CEO pay is how many cronies they can pack on the Board of Directors.
Sorry, there ain't no "free-market" at work on most BOD's.
(puts his own flameproof suit on)
This x1000000000000000000.
I would fully agree with that statement.
I think he proves to be an exception that proves the rule that they aren't generally worth that much.
I really can't think of many other CEOs that are really worth what they are paid, Buffett notwithstanding.
I don't have a problem with Jobs making a ton of money.
I have a problem with a CEO making billions while tanking a company and then getting a golden parachute on the way down.
Using Jobs and Buffet as examples to justify CEO pay is like using Tim Duncan and Kobe Bryant as examples to justify handing out max-level contracts in the NBA. The problem is because of the likes of Vince Carter, Eddy Curry, Tracy Mcgrady, Stephon Marbury, Jermaine O'Neal, Gilbert Arenas, Rudy Gay, Antawn Jamison and numerous other bad contracts.
yes, because that money trickles down to us lowly workers
CEOs don't pack a corporation's Board of Directors.
Shareholders elect the board.
Warlord on fire in this thread.
Hmmm.....
...the ones of us who remain employed so that the CEO and Board of Directors don't have to take a "pay" cut.
Are NBA players worth max contracts? They can be. Depends on the player.
Rex Tillerson and Ed Whitacre come to mind.
I think Alan Mulally is doing a pretty good job.
Another good example.
Is that a response?
Of course they can be. But you miss the point. If a player like Eddy Curry is signed to a guaranteed max contract, he can half-ass it for the duration of the contract and screw his team - the system does not guard against this eventuality. It is up to the character of the individual to continue to perform at a high level - the system does not require him to do so.
Fuld took the risk of taking highly leveraged positions in housing-related assets. This generated tremendous profits during the boom, and Fuld took home almost $100 million in pay between 2005 to 2007. Even if he knew that the housing boom would not last, he had no incentive to curb Lehman's gambling on the housing market. Once the bottom dropped out, thousands of investors lost money on these assets, and Lehman's shareholders lost almost everything they had invested in the company.
What did Fuld lose? He couldn't be asked to return the obscene amount of pay he had enjoyed in the boom years, neither could he be prosecuted. He just made a bet that went wrong. Would his investors and shareholders have authorized him to make such a risky bet if they knew the downside? No. Did Fuld care? No. He made his fortune in the boom years, and he didn't give a rat's ass who was left holding the bag when the game was up.
You can't blame Fuld too much though, since the system encourages such behavior. Just like you can't blame Eddy Curry for signing a guaranteed contract which requires no commitment from him on performance.
In many cases, over 1000x more valuable.
What you're describing is a case of ty decision-making by the board. Would you criticize the board the same way if it made a poor business decision (i.e., investing in some product that tanks)? And if not, why is there a difference?
Compensation is set by the board based on a recomendation from an independant committee of directors. Most boards take what these committee's say as gospel. If a director doesn't live up to expectations - that might simply be a bad decision by the board.
I don't know how you can make a blanket assertion that all corporate executives are evil and lazy and exist solely to swindle the common man. There are layers of protection to guard against nepotism. Factor in short term and long term incentive pay, along with shareholder activism by larger ins utional investors, and you have a system with several checks in place.
Is it perfect? No. But, do you have something better than gross over-generalizations of a broken-down system?
I get it. Eddy Curry got lazy and Fuld ed up. Those two specific examples aren't any more relevant to the respective generalized questions than Tim Duncan and Steve Jobs are.
" ty decision making by the board" is part of the problem with the system. Board members themselves are people who have lived and breathed this system, and succeeded in it. They are people who have typically benefited from similar compensation schemes, and would have little motivation to do it differently.
Where exactly did I assert that all executives are evil and lazy? Stick to the facts. Moreover, I didn't generalize. I pointed out what was possible - how CEOs could maximize short-term gains with impunity. I never claimed that most or all of them actually do it.
With regard to fixing the system: why not make a significant % of CEO bonuses kick in 5 years (or more) after after the CEO takes charge. Pay him a hefty bonus if he delivers in a sustainable manner for 5 years, pay him even more if he can keep it up for 10 years. Why throw money at him for showing results for just 1 year?
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