Worth More Than Others

The SEC passed a law not long ago so that by 2017 publicly traded companies will need to disclose not only the pay of their CEOs and 4 other top officials but also the ratio of their salaries to that of the average workers in their companies. The law is meant to help implement part of what is called the “Say on Pay” clause passed in 2011 as part of the Dodd Frank act, a clause which requires corporations to give shareholders a right to approve the pay packages for executives. The CEO/worker ratio is not new, and has beenquestioned from several quarters. A study conducted by the Economic Policy Institute concludes that the average CEO compensation in 2014 was $16.3 million, representing an increase of 997% from 1978, while the growth for the average worker during that time period was 10.9%. That means that the compensation ratio in 2014 was 303 to 1. In 1965 it was 20 to 1. The 3 companies with the largest pay gap were CVS—422 to 1, Goodyear Tire and Rubber—323 to 1 and Disney—283 to 1. As can be surmised it was a hotly debated issue. Those against the new law claim that the figures required by it create unnecessary costs. John Engler, president of the Business RoundTable, an association of CEOs, said “It’s a cost without a purpose.” The Los Angeles Times article reporting on this story cited the average U.S. worker’s pay in 2014 as being $47,230 and alongside cited the compensation of 4 CEOs: $84.3 million for Satya Nadella of Microsoft; $46.5 million for Robert Iger of Disney; $37.3 million for Jeffrey Immelt of General Electric; $25.6 million for Douglas McMillon of Wal-Mart.
Do these CEOs deserve these millions? Part of the rationale is that they work 24/7. Consider a working mother who gets up each day, gets the kids ready for school or day care, drops them off, goes to work, picks them up, makes dinner, puts them to bed, and still has to have time for grocery shopping, bill paying, taking out the trash, doing the laundry… Another explanation is that CEOs help the company grow, although it is sometimes a controversial issue because CEO compensation is not always tied to their success in a given company. The new rule will help shareholders make decisions and in some small measure stands to help stem inequality. If anything it will give a graphic view of the 1% and will add transparency. What may be even more significant, however, is that it will add heft to the argument of those asking why are CEOs worth so much more than others?