Scandal, Ego and Inflated Self-Worth Deserve Big Bucks

August 31, 2007

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As the nation prepares to celebrate a Labor Day holiday that will see the first increase in the federal minimum wage in a decade, a malicious new report gleefully attacks our CEO class, showing that the gap in pay and compensation between workers and bosses is growing.

The average CEO of a large United States company made roughly $10.8 million last year — or 364 times that of U.S. full-time and part-time workers, who made an average of $29,544, according to a joint analysis released Wednesday by the liberal Institute for Policy Studies and United for a Fair Economy.

CNN/Money reports:

The IPS/UFE report also compared U.S. CEO pay to that of leaders in other fields and other countries. The top 20 CEOs of U.S. companies made an average of $36.4 million in 2006. That's 204 times that of the 20 highest paid U.S. military generals, and 38 times that of the 20 highest-paid non-profit leaders. They also made three times more than the top 20 CEOs of European companies who had booked higher sales numbers than their U.S. counterparts.

If you just consider the average compensation (wages plus benefits) of full-time year-round workers in non-managerial jobs — roughly $40,000 — CEO pay is more like 270 times bigger than the average Joe's.

The pay gap numbers reported by IPS and UFE don't include the value of the many perks CEOs receive, which averaged $438,342, according to the 14th annual survey report, Executive Excess-The Staggering Social Cost of U.S. Business Leadership. Nor do they include the pension benefits CEOs receive.

In 2000, CEOs of firms that announced layoffs of 1,000 or more workers earned about 80 percent more, on average, than executives at 365 top firms surveyed by BusinessWeek. The layoff leaders earned an average of $23.7 million in total compensation at the time, compared with a $13.1 million average for executives as a whole. The top job-cutters received an increase in salary and bonus of nearly 20 percent, compared to average raises in that year for U.S. wage workers of about 3 percent and for salaried employees of 4 percent, according to the IPS Web site.

Meanwhile, what's just as daunting, if not more, is this: Including all the aforementioned numbers, CEO pay is nothing next to private equity and hedge fund managers' pay, according to this week's report.

The top 20 private equity and hedge fund managers, who work on a fee-based reward system linked to their funds under management, were paid an average of $675.5 million in 2006. That is equivalent to 22,255 times the annual pay of an average American worker — or more in roughly 10 minutes than the average worker makes in a year, Forbes reports of the study's findings. (In this survey, the "average" worker's salary is around $30,000 a year.) It is also roughly 61 times that of the average CEO, reports CNN/Money.

How do we feel about all this?

In the U.S., only 32 percent of the public currently supports an outright pay cap on executive earnings, wrote Sarah Anderson, director of the Global Economy Project at IPS, at the Washington think tank Foreign Policy in Focus Web site this week. But, she continued:

Average Americans appear to be every bit as outraged over CEO pay excess as average Europeans. Indeed, 77 percent of Americans say corporate executives "earn too much." Only 11 percent admire "those who run" America's "largest companies" either "a great deal" or "quite a bit."

Let us try to understand where these CEOs are coming from, though.

Those of us who live off of take-out when we're too tired to actually go to the supermarket ourselves after a long day's work should keep in mind that it is damn expensive to be rich and extravagantly expensive to be mega-rich. Do you have any idea how much it costs to maintain up to five different homes? Not to mention those homes' swimming pools, golf and/or tennis courses, guest houses and wine cellars — which all require constant supervision? And staff! Staff of up to 40-50 people: cooks, maids, nannies, pilots (for the private jet, natch) and even butlers.

I admit, I don't know how it feels to be filthy rich. But it must be hard. (Right? Right?)

Anyhow, according to Anderson, "some members of Congress have responded by introducing legislation to curb excessive pay through tax reform and giving shareholders the right to vote on pay packages."

Consider what happened one of the last times Congress played executive compensation consultant: "It inadvertently set the table for today's scandals," Slate noted in 2002. (See: Slate's Give That CEO a Pay Raise!)

I guess now isn't the best time to bring up this little gem...

CEOs Do the Wackiest Things! This is how Ben Baldanza, CEO of Spirit Air, recently responded to a complaint letter from a first-time customer:

Please respond, Pasquale, but we owe him nothing as far as I'm concerned. Let him tell the world how bad we are. He's never flown us before anyway and will be back when we save him a penny.

This might have turned out differently had the e-mail stayed inter-office — but Baldanza apparently hit "Reply All" and accidentally sent the message back to the original complainant.

Let him tell the world how bad we are? That is exactly what the complainant, software engineer Alexander C. Rudloff, did — by blogging about the incident and having it picked up by USA Today, MSNBC, The Consumerist and others.

Perhaps Baldanza is onto some new, psychologically revolutionary form of customer service, i.e., "Don't like it? Go to hell!" ::nods confidently, mutters under breath:: "He'll be back."

This tech goof reminds me of the big story in July, when the Wall Street Journal disclosed that Whole Foods CEO and co-founder John P. Mackey had couched behind an online alter ego for the past seven years.

Apparently, Mackey, using the handle Rahodeb (an anagram of his wife Deborah's name), had been making posts bad-mouthing competitor Wild Oats and talking up Whole Foods on the Yahoo! chat board for Wild Oats.

The co-founder of the largest natural-foods chain typed out a voluminous 1,100+ entries on Yahoo! Finance's bulletin board, playing cheerleader to his own company, while occasionally skewering its rival, Wild Oats Markets, which Whole Foods was at the time in the process of acquiring (The takeover deal closed on Monday.).

You can't make this stuff up. And that is why they're paid the big bucks: for their ingenuity.

Earlier: Your Pay vs. Your Boss's

In observance of Labor Day, Industrial Market Trends will not publish on Monday, Sept. 3. But we will be back on Tuesday, Sept. 4, at which time we will publish our issue on all things workforce related. IMT wishes all our readers a safe and fun holiday weekend.
Cheers.

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