It is that time of year again. The largest federation of unions in the United States is handwringing to the sky and behaving like petulant children at a birthday party, crying and shrieking about another kid receiving a bigger slice of cake or Billy getting a copy of Thomas Sowell’s Wealth, Poverty and Politics as a present. The AFL-CIO published its annual “Executive Paywatch Report,” which concluded that the average S&P 500 CEO-to-worker pay ratio is 287:1 this year.
Oh, the humanity! Whatever will we do? A CEO earning higher than an intern with a bad attitude and a horrific odor will end civilization and destroy the planet! If only the government would intervene!
As in previous years, the latest incarnation of the study is suspect, to say the least. But that will not stop the left from using it as a source to prove income inequality is a real and devastating thing, tapping into voters’ worst characteristics: envy and hate. Of course, this is further proof that the left cannot even use real information to get the public to loathe chief executives. Progressives need to rely on misrepresentations, dubious calculations, and false data to get their message across.
Lies, Damn Lies, and Statistics
To highlight the growing gap in compensation between workers and their superiors, study authors had to use inflationary methods to make their point. For instance, the report factored in part-time and global workers and the mean compensation for CEOs instead of the median figure to their findings.
The first measure is sly. A lot of the S&P 500 companies have employees all over the world, including in foreign markets that do not have high compensation like in the United States. By adding workers in low-wage countries – Pakistan, Mexico, and the Philippines – the AFL-CIO can inflate the ratios and distort what is really going on.
The second tactic is cunning. Researchers took the pay ratios of the companies – 40,668:1 for Tesla and 1:1 for Tile Shop Holdings – and then used the average to come up with its 287:1 CEO-to-worker compensation ratio. How callous! In high school mathematics, you are instructed to choose the median to determine value in distribution when there are anomalies. When you figure it out this way, then the ratio tumbles to 169:1.
Not only is this terrible methodology, but it is also a falsification by comparing only the highest-paid American executives to worker income. If you compare the salary of roughly 25,000 CEOs across the country, which is around $200,000, to worker compensation, then this gap crashes to 5:1.
It should be noted, too, that the AFL-CIO’s reported gap is 21% lower than last year. So, even with tweaking, the left can’t properly convince the public to detest executives.
The whole point of the study is to advocate confiscation and redistribution. Mark Perry of the American Enterprise Institute (AEI) crunched the numbers and concluded that if the $7.25 billion in total compensation were redistributed to 105 million workers, then that would amount to an extra three cents per hour.
Perry told the Washington Free Beacon that the report is a circus act:
“They are trying to come up with sensationalized numbers that exaggerate and inflate statistics by comparing apples to oranges. It allows them to make the case that their members deserve a raise.”
Pearl Clutching About CEO Pay
If you think about CEO compensation for more than a millisecond, then that is one millisecond too long. Yet, the left spends its entire days decrying executive compensation, figuring out new ways to punish success.
Steve Easterbrook
Let’s say that every CEO is earning the same as McDonald’s Steve Easterbrook, who truly earned his $15.876 million salary in 2018 by turning the dying franchise around. If a private company is willing to compensate an executive nearly $16 million, then what business is that of ours? Unless you are a stockholder who has a say at the next general meeting, it shouldn’t matter to John Q. Public.
Contrary to popular opinion that CEOs just have lunch all day long, these men and women perform high-level work with their high-level acumen and skills. If a fledgling company is on the cusp of extinction and desperate to prevent a sinking ship, then it might want to attract the best and brightest by offering a seven-figure salary and stock options. Should that executive fail, then it was a gamble that did not pay off and the corporation is left to pay for failure and search for another leader.
Just as not everyone can be a pitcher for the Boston Red Sox or the New York Mets, though you could argue that a random guy on the street would perform better right now, not everyone can be a CEO. It is the water-diamond paradox, otherwise known as the paradox of value.
This principle applies to executives. It is easy to swap one low-level employee at Acme International, but it isn’t as simple as substituting an ultra-successful CEO for another one – ask Microsoft when Bill Gates exited the tech giant.
It is easy to hate on CEOs. After a company lays off 3,000 workers, executives are getting bonuses. It is an objectionable practice, but the role of a CEO is to maximize profits, enhance the corporate brand, and keep costs at a minimum. Plus, if these bonuses are a part of the contract, then it is ironclad and the public cannot shout and pout.
If you are employed at Disney or hold 10,000 shares, would you rather have Bob Iger at the helm earning millions a year or an intern from Vasser College leading the company with a $40,000 annual salary?
Chief Envy Officer
If you watched the Democrat debates – may God have mercy on your soul if you did – then when the candidates were not promising abortions for men and trillions of dollars in new spending, they went after the wealthiest members of society with empty words and shallow platitudes. Whenever someone shrieks about the top 1%, it only elicits an eye-roll and a shrug these days because the average person is coming around to the fact that everyone is earning a living, leading better lives, and increasing their purchasing power thanks to these villainous rich people.
In an age where envy has somehow turned into a virtue, we are indoctrinated to detest those who have more than us. But why does it have to be this way? Can’t we be so much better?
There is an old tale of two families working on the side of the road. A man drives by in an expensive car and listening to Jelly Roll Morton. One son turns his father and wonders, “Dad, why is that man rich?” The man replies, “Because he stole it from us hard-working people. The government needs to redistribute his wealth.” The other son turns to his dad and asks, “Papa, why is that guy rich?” The other father responds, “Because he earned it. Good for him. If you work hard enough, then you can be wealthy, too.”
Instead of hating someone for owning three homes, eating overpriced bread, and spending summers on a yacht, why can’t we ever say, “That will be me someday”?
If life were only like that …
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