I stumbled onto a startling statistic recently by the Economic Policy Institute in regards to the CEO to worker compensation ratio. According to their report the CEO to worker pay ratio in 1965 was 20-1. So if in 1965 I earned an average salary of say $4,600 a year, close to the average salary at the time, than my CEO likely earned $92,000 that year on average. One might complain about such a disparity but perhaps the salary is justified considering that the CEO presumably worked very hard at a very good school and hopefully is responsible for much of my company’s success. Perhaps they would have deserved to make 20 times my salary.
Jump to 2013 and we find that the CEO to employee compensation ratio is no longer 20-1. In fact if you were to go out on a limb and dare suggest it had increased to as high as 50-1 you would still be way off. In 2013 the ratio sat at a remarkable and almost sickening, 296-1! Average CEO compensation in 2013 was $15.2 million dollars! Using 1965’s 20-1 ratio, an average CEO making such a wage today should have employees earning $750,000 a year! This is not the case however with the national average for workers sitting somewhere between $45-$50K a year depending on your gender and location. Between 1978 and 2013 the average worker’s compensation, adjusting for inflation, increased by just over ten percent but between that same period CEO compensation increased by a mind blowing 937 percent!
Surely though the ratio is as high around the rest of the world right? Not quite. Based on 2012 numbers the CEO to worker compensation ratio in France was 104 to 1, in Australia the ratio was 93 to 1, in the UK the ratio was 84 to 1 while in Japan the ratio was only 67 to 1. These guys are still making great money but even Spain at a disparity of 127 to 1 isn’t approaching the U.S.’s 2012, 278 to 1 ratio. Consider too that a high CEO salary does not guarantee a job well done. Last year JC Penny’s CEO was ousted after failing to turn the struggling company around. At the time of his departure his compensation was almost 1,800 times the average worker’s pay within the company!
According to the latest Employee Job Satisfaction and Engagement research report from SHRM, compensation has become the number one driver of job satisfaction for employees which was not the case during the recession. Additionally a SHRM survey on financial wellness found that 70% of HR professionals believe employees’ financial challenges impact performances. Of course it does! Employees’ inability to pay bills and meet other financial needs surely will be a source of preoccupation not to mention disengagement.
Let’s look beyond the cost of employee disengagement and focus on the economy as a whole. Companies are making record profits. In fact they are making more per dollar of sales than at any point in the past. While this might sound great for the economy their increased profits are built on the slashing of jobs and the requirement of remaining employees to handle more duties with little increased compensation. Our economy is fueled by consumers but if our consumers have no money because their wages have been frozen or even cut then how can our economy grow? CEOs and top executives are stuffing their pockets with our wages and thereby shooting themselves in the foot by starving the consumers who fuel the economy and their profits. Does this make sense?
In September 2013 the SEC voted to propose a rule that would require public companies to disclose the ratio of their chief executive officer to that of the median salary of its employees. As of August 2014 this rule has yet to be embraced though it is slated to be adopted by October. Laura Richman, counsel at Mayer Brown LLP suggests however, “Even if the SEC adopts final pay ratio rules in 2014, it’s unlikely that pay ratio disclosure would be required in the 2015 proxy season.”
Capitalism is wonderful but not when only one man/woman reaps the majority of its benefits.
As a film lover I will close with this line from the Dark Knight Rises as spoken to billionaire playboy Bruce Wayne. “There’s a storm coming, Mr. Wayne. You and your friends better batten down the hatches, because when it hits, you’re all gonna wonder how you ever thought you could live so large and leave so little for the rest of us.”