Friday, October 31, 2008

Something Different For The Weekend, Part I

Some random postings that have been kicking around for awhile now:

First, I found this site a few weeks ago, the AFL-CIO's Paywatch, which tracks CEO pay. According to the site, the average CEO compensation for an S&P 500 company in 2007 was 14.7 million dollars. It sounds like a lot, but it also makes you realize that the hundreds of millions of dollars in executive compensation that makes the news are outliers, even among large companies.

I decided to break the numbers down even further. Just for fun, let's say these companies employ, on average, 10,000 employees. And just for fun, let's say that the average employee makes 50,000 per year. Well, with those just for fun numbers, we come up with an annual payroll of 500 million, a number that dwarfs the average CEO compensation. And with those fun numbers, divide the average CEO compensation by the number of employees. You wind up with $14,700, not exactly a small chunk of change, but not exactly the sort of money that would be making the vast working class wealthy.

For all the complaints about excessive CEO compensation, the numbers don't seem all that troubling to me. And for those who would say, "geee, can't we just give a little of that CEO money to the working folks," let's just remember for a moment how this all works. The CEO is ultimately in charge of employee compensation, but the compensation of the CEO is ultimately the responsibility of the Board of Directors. There are different considerations in each regard, most notably the fact that other companies are much more likely to try and poach your CEO than they are to try and poach your 50,000 a year workforce. To be perfectly honest, I often scratch my head when failing companies give bonuses and compensation packages to failure CEO's, but again, it's a different issue from employee compensation. If I worked for a company with a moron CEO I'd be more worried about the company getting run into the ground and losing my job than I would be about the money the guy was getting.


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