Articles

CEO Pay - a national disgrace

The statistics are in for 2015. The average chief executive of an S&P 500 company was paid a whopping 335 times more than the average non-supervisory worker. While this is a stunning disparity, it has not always been like this. In 1965 the multiple was "only" 20 and still around 34 by the early 80's. 


    The causes of this are relatively simple. Directors with cushy, high paying board seats, are not about to rock the boat and reduce or limit their CEO's pay. Not to speak of the fact that there are a lot of interrelated board members who want and expect the same treatment when the roles are reversed. Board compensation committees look at industry comparables and justify large increases based on the fact that everyone else is doing it and they need to be competitive. Thus we have this self-fulfilling upward cycle of greed. 


     It might be justified if all of these companies did really well, but that is hardly the case. These high pay scales were solidly in effect when the crashes of 2001 and 2008 took place, and most of those CEOs got raises and bonuses. CEOs are rewarded for taking risks, even if it results in the ultimate destruction of the company (think Kerry Killinger who drove Washington Mutual into a ditch). 


     The main problem with this compensation imbalance in my opinion is the fact that no one person in a company of many thousands of employees can possibly be worth that much. Khosrowshahl of Expedia is at $94 million, Legere at T-Mobile is at $24 million and Schultz of Starbucks is at $20 million. These people make more in one week than a school teacher makes in a decade. We need to think about what this says about our society. 
     The simple fact is that success of any company, including yours, is a team effort, not the result of one person, as brilliant as he or she may be. 


      Owners of closely held companies are free to set their own compensation at any level, but can't really do so in a vacuum. Employees eventually come to believe that they are being exhorted to work hard and build profits simply to fill the pockets of the owner, and this is not good for morale. 


     The success of your business is the result of a highly motivated and happy team of employees. Take a look at your company and make sure that compensation for everyone is both fair and competitive.


     The ideal situation is to have all of your employees think like owners, and be motivated to build profits in the company. Click on the link below for a description of a profit sharing program that accomplishes exactly that. 


     All of your team members work hard to build profitability and everyone wins!

Profit sharing plan outline

Tracy Bech