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Tuesday, September 30, 2014

CEO Pay, Let’s Keep It a Secret

A few days ago there was an article in the Washington Post about a study that showed that most people think CEO pay is about thirty times higher than the medium wage while in fact it is over 300 times higher.  More precisely the ratio is 354 to 1, there are 28 companies where it is over 500 to 1 and one company where it is 1795 to 1.  Companies really don’t want those numbers out there.  They think they mislead investors and Harvard Business School Professor Michael Norton is quoted as saying they are a disincentive for workers.  Well, yeah.  In 1950 GM chairman “Engine” Charlie Wilson was paid $663,000, roughly  $5  million  in  today’s  dollars,  and  about  40  times the annual wage of his average assembly line worker. Corporate ethic frowned on CEOs taking stock grants as unfair “competitive avarice.” Economists call this period “The Great Compression” because the income gap between the rich and the middle class was at its narrowest in the twentieth century.  If you divide $663,000 by 40, you get $16,575 and if you do the same for $5 million you get $125,000.  The friendly old Heritage Foundation estimates that GM workers still get about $75 per hour in wages and benefits but they add in the legacy costs of retired GM workers.  GM itself puts the figure at $59 per hour.  It might be worth mentioning that Engine Charlie’s marginal tax rate in 1950 was 91% instead of 35% like now and that the average growth rate of the US economy in the 1950s and 1960s was over 4%, dropped to around 3% in the 70s and 80s and has averaged below 2% over the last 10 years.  In fairness I have to note that the marginal rate on that $16,575 was 47%.  If corporations are people, don’t they have some social responsibility along with the rest of us? 

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