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Should CEOs make 276 Times More Than You?

Aug 15

Check out this chart from Business Insider:

Screen Shot 2016-08-15 at 3.28.08 PMBasically, this chart is showing you how much more your CEO makes than the average worker at your company, assuming you work for one of the 350 largest companies in the United States.

So, let’s put this into real numbers:

The average worker makes around:  $45,000.

That means the CEO makes: $12,420,000.

I think most people feel that disparity is too much. I put it in the context of professional athletes. Should LeBron James get $33,000,000 per year to play basketball for the Cleveland Cavaliers?

We tend to think LeBron shouldn’t get paid $33 Million per year, but at the same time were alright with it because well he wins games. But somehow we don’t believe Indra Nooyi, the CEO of PepsiCo, should earn $22,000,000 per year like she did last year. Why is that?

Oh wait, would you feel better if I put one of those old white guy CEOs compensation number up? Would that make it easier for you to hate?

I find it interesting that for most of the modern era (prior to 1980) CEOs made roughly 25 times more than the average worker. In our example above that would then look like this:

Average worker: $45,000

CEO: $1,125,000

Yeah, this still sucks, right?

So, what should the figure be? How much more should a CEO make than the average worker? Does 10 times seem right ($450,000)?

I’m a Moneyball guy. I have a hard time believing any CEO is truly worth 276 times more than an average worker, but if that’s what the market bears, more power to them! I’m also a Capitalist!

I do believe, though, that all of these organizations could fire their CEOs at 276 times pay, hire someone else at half that pay and they would have the same or better results across the board. 50% pay cut, same performance. So, why wouldn’t they do this?

Organizational dynamics are built to continue this behavior of over-paying. At some point around 1980, someone let the cat out of the bag and leaders have been pushing the envelope ever since! Think about how this all goes down. A leader goes to the board of directors and says, “Look we need better talent at the C-level to support me.” The board supports, raises get put in, this pushes up against the CEO.

Well, now we have compression, time to move the CEO up. The cycle continues, again, and again…. It becomes a leadership arms race! The board feels like they are in no win situation. If the company is doing well, of course, they vote yes. If the company is doing bad, well, we need better, so you get another yes vote.

No one is willing to just stop it. To say, you know what, ten times or twenty-five times, is plenty. We’ll find great talent at that amount. I’ve met great CEOs and awful CEOs of very large companies. All made outrageous money and their performance had very little to do with their compensation.

What do you think? How much more should a CEO get paid over the average worker?

4 Comment to “Should CEOs make 276 Times More Than You?”

  1. I was following the the 1:12 movement in Switzerland back in 2013. That was exciting and it almost past. I think it’s the way to go. The rule, if it had been adopted, stated that no CEO could make more than 12 times the lowest paid worker in their company. If CEOs want to make millions, great, just raise the lowest paid worker’s salary accordingly. I’d like to see something like this adopted in North America. I’d also like to see it apply (along with tax laws) to sneaky corporations that place a “fake” headquarters overseas, but really are based in the US. People who argue that CEOs get paid what they’re worth, what the market will bear, are missing the point. We put too much emphasis on the CEO. They are just one piece of the puzzle. They get rewarded when companies succeed (often due to nothing more than market forces) and when they fail. Here’s an example: The former CEO of Target Canada was charged with bringing a very successful retailer into a new country – a country of people who already had an affinity for the brand – and he totally botched it. He obliterated the initiative, cost the company billions, cost thousands of people their jobs, hurt other businesses that were counting on Target rejuvenating shopping centers, and he got a $50 million separation payment. Not fired for cause. A $50 million handshake. It’s crazy.

    Michael Miller
    Aug 16, 2016
  2. CEO comp level escalation is the result of boards not doing their job. They have abdicated their responsibility to their shareholders by giving in to peer pressure, vanity and greed. Look at comp levels in Europe and Asia to see that CEO comp does not have to be sky high in order to receive quality leadership.

    Aug 15, 2016
  3. This is like the absurd Bernie Sanders envy of successful people. Everyone should worry about if they are paid appropriately. If they are not they should look at their job, their performance , their organization and people in similar jobs. If you are not the CEO than you are clueless as to what the CEO does and what he/she is worth. If you feel you not earning enough, find another job, get better skills, education, performance etc. This worrying about what the CEO makes gets you no where, other than following the liberal trend of hating successful people.

    parker davis
    Aug 15, 2016
  4. I’d be cool with 100 times if boards would tie golden parachutes to some equitable standard. For far too many large org CEOs it’s all reward with little to no risk.

    Aug 15, 2016

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