Why American CEOs Aren’t Paid Enough

How the ordinary person fails to understand the enormous pressures that come with being at the very top of the heap.

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Image credit: Picturesofmoney.com

Most people are aware that American, and specifically US, CEOs are paid quite handsomely. Few, however, know just how rich the CEO pot has become.

Data released by the Economic Policy Institute show that in 1965 the ratio of CEO pay to average salary was 20:1. That is, back in 1965 the average worker was earning around $4,800 per year and the average CEO was earning $96,000. Inflation since then has made these numbers look small, but to put things into perspective the average US house price in 1965 was a whisker under $20,000.

Today however the ratio of CEO pay to average salary has changed somewhat. The ratio is now 278:1. Yes, that’s right: the typical CEO earns two hundred and seventy-eight times as much as the average worker.

In other words, in the years since 1965, CEOs and a small number of other top executives have captured nearly all the net profits generated by America’s corporations.

Many people think this is unfair.

And they’re right, but not in the way they imagine.

What’s truly unfair is how little the typical US CEO takes home each year. In 2018, average CEO take-home compensation was a paltry $17.2 million. When we think about the immense pressures of being the Chief Executive of an American corporation it’s clear that CEOs are being dramatically under-paid.

To understand why this is the case, let’s take a close look at some of the many challenges a CEO must deal with.

First of all, there’s the near-daily stress of the obligatory hours spent playing golf. This activity is essential for any good CEO, enabling them to schmooze with other CEOs and thus benefit from network effects. Ordinary people fail to understand the enormous psychological and physiological pressures that come from strolling around a well-manicured lawn while lackeys follow along behind carrying one’s golf bats and pitchers of chilled margarita.

Next comes the anguish of determining which corporate jet to use when flying to the next executive retreat in the Bahamas or Bali or Bora-Bora. While it would seem obvious to use the newest extended-range Gulfstream, there’s always the problem that burning up the miles will mean the aircraft has to undergo routine maintenance at just the wrong moment; for example, when it’s time to fly to Davos for a week of schmoozing with other CEOs and powerful people at the World Economic Summit. What CEO would be careless enough to show up in last year’s private jet merely because they’d failed to plan ahead?

Speaking of private jets, no one understands the phenomenal trauma that results from being served the wrong vintage champagne mid-flight. When a CEO’s delicate palate can only tolerate 30-year-old La Grande Dame from Veuve Clicquot, serving chilled Krug inflicts unimaginable psychological and physiological harm.

While any form of strenuous exercise would likely kill most US CEOs, they adore sporting analogies. The classic analogy is with American Football (which, for those who don’t know about it, has nothing to do with feet but is instead an excessively homo-erotic pseudo-sport in which nothing happens for very long periods of time and in which lycra-dressed young men proudly announcing their roles such as “tight end” and “wide receiver” embrace one another enthusiastically at every opportunity). The CEO is the quarterback of the company and we protect the quarterback at all costs. The focus of American Football is to get the ball to the quarterback and so the focus of the US corporation is to get the money to the CEO.

When central bank interest rates are low and consequently share prices are booming, this is effortless. Profits may be abysmal and competitors may be stealing market share but the happy CEO/quarterback can shout, “Man, look at our share price soar!” and quickly slip himself another few million dollars. But even in an irrationally exuberant bull market, any dip into the red risks jeopardizing the CEO’s meager take-home pay. And so Steps Must Be Taken.

Naturally when a company is under-performing (a circumstance that has absolutely nothing whatsoever do to with the CEO and is merely an unavoidable result of totally unpredictable geopolitical forces beyond anyone’s control) it’s time for some belt-tightening. And who can tighten a belt around a flabby corporation when there are so many people inside it? The only possible solution is therefore to right-size immediately so as to ensure a satisfactory bottom line and thereby secure the CEO’s all-important quarterly bonus.

We can only imagine the happy faces and the emotional satisfaction of those who lose their jobs under such circumstances. Any financial hardship they and their families may face will be more than offset by their knowledge that their trivial sacrifices (loss of home, loss of health insurance, breakup of marriage) are all for the Greater Good: the CEO’s net worth.

But imagine the stress this puts on the CEO. What if he hasn’t fired enough employees to make the necessary difference? What if just one employee too few is downsized, and he misses out on his multi-million-dollar quarterly bonus? It’s easy to imagine the sleepless afternoons our overworked CEO may experience while he grapples with this awful possibility.

It’s pretty clear, then, that CEO compensation is currently inadequate to compensate the man at the top for the stresses and strains of the job. Forget a 278:1 ratio. We need a 500:1 ratio at least!

Fortunately there’s a way to get there. Of course more people can be downsized and those remaining made to work much harder. Everyone knows that 80-hour weeks for half the previous salary are what made America great in the first place. And cutting back on frivolities like contributing to health insurance and retirement funds only makes sense.

But there’s so much more we can do to help the poor struggling CEO as he drags himself from golf game to executive retreat. Today many corporations use unpaid internships to fill the void left by all those who’ve been downsized. This is short-sighted thinking. Surely the value of an internship is so great (“Hey kid, it’ll look fabulous on your resume”) that interns should be paying the corporation to be allowed to work 80 hours per week?

It’s pretty clear that most corporations could ramp up internship programs to the point where at least 50% of people working there would be paying for the privilege of doing so. This, combined with necessary economization of workers’ salaries, ought to be enough to get us close to that much-needed 500:1 ratio.

So let’s hear it for essential employment innovation, and let’s hear it for those poor overworked and under-paid CEOs who tirelessly, day in and day out, do everything they can to make the USA the wonderful nation it is today!

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Anyone who enjoys my articles here on Medium may be interested in my books Why Democracy Failed and The Praying Ape, both available from Amazon.

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