Saturday, March 6, 2010

Are stagnant wages the result of huge increases in CEO salaries?

I'd like to see a study that looks at the stagnant (or even falling) wages of the average American worker in relation to the sharp increase in the compensation to CEO's and other top executives. According to the Economic Policy Institute, ""in 1965, U.S. CEOs in major companies earned 24 times more than an average worker. In 2005, the average CEO in the United States earned 262 times the pay of the average worker, earning more in one day than the average worker in a whole year." It's probably even more today.

Just as a thought experiment, Company A pays its top execs an extra $40 million a year in total compensation compared to what they would have been paid relative to the average worker in say 1968. Now take that $40 million a year and distribute it to your lowest salaried workers in the form of a pay raise, say $2,000. That's 20,000 workers that see their wages rise within the company. And that's a $2,000 increase every year. Good-bye to stagnant wages.

On paper, it sounds quite convincing, though I'd like to see the data on actual companies. This area seems ripe for research, if it hasn't been done already.

Given Tonelson and Kearns recent NY Times OP-ED in which they point out quite convincingly that we are incorrectly measuring worker productivity because we don't measure the off-shore worker hours, it seems possible that the top executives are simply replacing higher wage American labor with cheap, foreign labor and pocketing the difference in cost. The CEO-Media Complex is entrenched. That's why we need the research to support a move toward more shareholder and worker say in executive compensation. Again, the German model seems like a viable alternative.

Our CEO-Media Complex is giving all the credit (and the money) to top execs. All companies are teams, and everyone plays a role. If a company does well, all employees should be rewarded and it could be argued that they average worker on the front lines should be rewarded as much or more than the top executives.

Instead, we laud CEO's like former GE CEO Jack Welch in our press giving them far too much credit. As recent history has shown, Welch's business decisions for which he was praised and put on countless magazine covers (as well as given millions in a sweetheart retirement package that continues to this day) were actually detrimental to GE in the long run, as well as detrimental to our environment and our country. That's just one example.

I'm not an economist, just a concerned citizen and employee disgusted with rising executive pay at great cost to the average worker. I'd love to hear your thoughts.


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