A few days after print publication, Knight's syndicated newspaper column, which moves twice a week, will be posted. The most recent will appear at the top.

Thursday, May 16, 2013

CEO pay: means, medians and meritocracy

Bill Knight column for Mon., Tues. or Wed., May 13, 14 or 15

A recent column titled “Escalating CEO pay in the U.S.: Is it worth it?” got more reader response than anything I’ve written since a piece on the Illinois General Assembly unfairly attacking state employees and the pension to which they dutifully contributed in the expectation of receiving modest retirement incomes.

The CEO-pay issue is about income that’s far from modest.

“In the last 30 years, CEOs have gone from being well-paid (more than 40 times the pay of everyday workers) to being ridiculously enriched,” I wrote. “U.S. CEOs make 354 times more than their [average] employees” earn.”

Renée H. wrote, “Bill: It’s angering and ridiculous that this keeps going on.”

Marylou H, commented, “It is obscene, unethical and, in my opinion, immoral. Just thinking how individuals can delude themselves into believing this kind of compensation is justified sickens me!”

David F. added, “It’s absurd, Bill. Is there a CEO out there who has the graciousness and integrity to say: ‘I don’t believe in enriching myself on the backs of the laborers, so I am going to restrict my own compensation to 20 times what my average employee make,’ or something along that line? Wishful thinking, I know.”

Speaking of wishful thinking, three years ago, Congress passed the Dodd-Frank law requiring CEO-to-workers pay ratios to be revealed, but the Securities and Exchange Commission still hasn’t set the rules for disclosure.

I’ve asked, “When is enough enough?”

Reader Kent K. replied, “Bill, it’s been ‘enough’ for many years now.”

And Nathaniel L. added, “Enough is enough in a land led by greed ... to my great chagrin, I think not.”

However, another reader said examining corporate CEOs alone ignored inequality throughout society.

“Good story, Bill,” wrote Gary G., “but a little too narrowly focused.

“Your column today spoke to an inequity that has sadly been there for a long time … generations if not centuries,” he continued. “It is a bothersome dilemma. But I find it interesting that you frame the problem as exclusively the domain of business.”

He noted that entertainers such as Tom Cruise and Leonardo DiCaprio make millions, as well as athletes and even a few college coaches (and administrators – “The Chancellor at the University of Illinois pulls in $500,000,” Gary added. “What does a food preparer make in a dorm cafeteria?”).

“Why do these other people bring in the big bucks?” he continued. “Because the people that pay them feel that they have the talent to achieve success for their organization … the best people possible.”

That’s not a bad point. If U.S. society was a genuine meritocracy where income was tied to the value of the work, then home health-care nurses, clergy and grade-school teachers would have incomes much closer to surgeons, accounting directors and legislators, if not CEOs, singers and second-basemen, for the most part, consumers directly pay for CDs, sports and so on, and corporate customers do not pay for exposure to CEOs, but a company’s products or services. CEOs’ pay is set by a board often packed with friends of the CEO, not the shareholders, so CEO compensation can be high even at corporations that are doing poorly.

Also, there can be differences between an average (or “mean”) and the median (or midpoint of a list of amounts). For instance the starting lineup for a fictitious and struggling NBA team could show salaries of $500,000 for a rookie; $1 million, $3 million and $4 million for journeymen players; and $20 million for a star. The lineup’s mean/average is $5.7 million – even though 4 out of 5 players make less than that. The median is $3 million, with two salaries above and two below that point.

“A CEO of a Standard and Poor’s 500 Index company averaged $12.3 million a year in total compensation, while the average rank-and-file worker earned $36,654,” I wrote. Bloomberg News recently reported that the median for S&P 500 CEOs was Agilent Technologies CEO William Sullivan, who received $10.1 million last year.

That level of pay is high, however you look at it.

Tom B. responded more philosophically, “Good article, Bill. Now let’s see if I understand: I invest my hard-earned cash and not only am I being skimmed by high agent fees, the CEOs … and funds I’m invested in are skimming off their share as well to the tune of over $100 million per year. Plus, they’re setting up their own retirement accounts in the realm of hundreds of millions of dollars. And folks wonder why their investments aren’t paying off? Greed and theft in the marketplace. When have we heard of that in our past?”

[PICTURED: Khalil Bendib cartoon from]

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