About CEO pay vs average Joe

freindlyfired

It's pretty hard these days to justify astronomical executive pay. In 2007, the average CEO's pay of $10.5 million was 344 times higher on average than the average worker's wage, according to Executive Excess 2008, a joint report from the Washington, D.C.-based Institute for Policy Studies and Boston-based United for a Fair Economy. The top 50 private investment fund managers each took home more than 19,000 times the average worker's earnings.

But never fear, Jack and Suzy Welch -- the former high-flying CEO of General Electric and his wife, the former editor of the Harvard Business Review -- are willing to defend high executive pay by return to first principles and invocation of "the market economy." In a recent issue of Business Week, they write, "Yes, most CEOs make a ton of money, and sometimes they make too much, but in a market economy salaries are set by supply and demand. We also live in a market economy where companies that field the best teams win, and, because of global competition, the best teams tend to be expensive."

There are several decisive rebuttals to this claptrap.

First, there is no plausible market-based story why executive pay should have been bid up so much over the past quarter century. Are executives working harder now? Making better decisions? Has the CEO supply and demand equation changed?

Second, executive pay is not set by the market, but by boards of directors, who frequently are CEO cronies and excuse their behavior by relying on conflicted compensation consultants.

Third, the most super-high compensation packages are typically based on performance standards, with executives cashing in on stock options as share values rise. But this is a system easily gamed, with those same shares sold before short-term thinking leads to medium-term losses. By way of example, consider the massive pay packages obtained by the ousted CEOs of the now-floundering Wall Street firms.

And now comes a new analysis that further debunks the market-based rationalization for ridiculous CEO compensation levels. Executive Excess 2008 shows how taxpayers are helping foot the bill for these outrageous compensation packages.

Executive Excess 2008 highlights five distinct U.S. tax subsidies for executive pay. These are actually market distorting, in that they let top executives and investment fund managers take home more than they would if they played by the same tax rules as regular people. Altogether, Executive Excess 2008 reports, the five tax loopholes heap $20 billion in subsidies on the corporate and hedge fund honchos.

* The hedge fund manager loophole, involving what is called "carried interest," enables investment fund managers to treat most of their salaries as capital gains, and to pay taxes at the capital gains rate, rather than the ordinary income tax rate. Annual cost to taxpayers: $2.6 billion.

* The pensions for the rich loophole. While regular people can place a maximum of $15,500 in 401(k) plans -- deferring taxes until they withdraw the money -- CEOs can place unlimited amounts in deferred pay plans. Annual cost to taxpayers: $80 million.

* The offshoring loophole. Although companies cannot deduct the expense of executive compensation in deferred accounts, this is no problem for businesses registered in offshore tax havens. Set up an offshore subsidiary, and you can deduct the deferred income from revenue. Annual cost to taxpayers: $2 billion.

* The greed loophole. Money spent on wages and salaries are deducted from corporate revenues, and is not taxable. For top executives, however, U.S. tax rules impose a limit: corporations cannot deduct salaries and compensation that is more than "reasonable." An effort to define reasonable as $1 million has been entirely circumvented -- and corporations can, in effect, deduct whatever they pay CEOs. Annual cost to taxpayers: $5.2 billion.

* The double-standard loophole. Stock options -- the right to buy stock at a preset value, at a later date -- are now a huge component of executive pay. For their internal accounting, corporations value stock options using the value of the stock on the date of the option grant. For tax purposes, however, they can deduct the generally much higher value of the stock on the date the options are exercised. In other words, they can deduct more than they list as their expense. Annual cost to taxpayers: $10 billion.

Not long ago, it was possible to argue that executive pay was an important but symbolic issue. But then it became clear that ever-escalating executive pay is creating a culture of greed that is fueling income and wealth inequality. And now it has become clear that executive pay schemes are contributing to corporate practices harmful not only to workers, consumers, communities and the environment, but to corporations themselves, and even to the functioning of the economy.

The foolish and inexcusable housing-related investments by Wall Street firms, Fannie Mae and Freddie Mac resulted in no small part from executive compensation-driven efforts to drive up short-term stock values. These decisions were so bad, and of such enormous scale, that they have endangered the functioning of the financial system itself, thereby necessitating government intervention and massive taxpayer expenses -- an indirect but even more expensive taxpayer subsidy for executive compensation.

A "market economy" indeed.

Robert Weissman is editor of the Washington, D.C.-based Multinational Monitor, and director of Essential Action.

jeffbr

OK, what do you want to do about it?

Have the government create a pay schedule?

SundaySilence

jeffbr wrote:

OK, what do you want to do about it?

Have the government create a pay schedule?

Progressive taxation and close the loopholes.

Strangest Tribe

jeffbr wrote:

OK, what do you want to do about it?

Have the government create a pay schedule?

that's the best idea you've ever had

jeffbr

SundaySilence wrote:

Progressive taxation and close the loopholes.

I'll agree that "loopholes" should be closed. But some of the above are accounting rules that are part of the overly complex tax code. So how about we get rid of all of the loopholes, and simplify the tax code with a flat tax?

jeffbr

Strangest Tribe wrote:

that's the best idea you've ever had

I figured the socialists on here would like that!

saveuplife

Why can't people understand Econ 101?

Strangest Tribe

jeffbr wrote:

I figured the socialists on here would like that!

bite your tail mouseketeer:)

i'm not a socialist



that would mean I'd only imprison those in power after the revolution....
I'm for firing squads

Strangest Tribe

saveuplife wrote:

Why can't people understand Econ 101?

can you explain it?

Kel Varnsen

freindlyfired wrote:

It's pretty hard these days to justify astronomical executive pay. In 2007, the average CEO's pay of $10.5 million was 344 times higher on average than the average worker's wage, according to Executive Excess 2008,

It doens't really bother me. I mean if you are an average Joe working for a big company and you fuck up on something it is probably not going to have a huge effect, at worst you might lose your job. If you are the CEO of a big company and you fuck up at worst every average joe in the company could lose their job.

Not to mention the average joe gets to go home at night and chill with a beer, while the CEO is essentially on the job 24/7, when you take that into account, and the fact that it is the type of job only a small portion of the population is skilled enough to handle, then yes I think they should be paid accordingly. I mean you don't want some unskilled joker running a Fortune 500 company, you want someone with the skills, but getting somone with the skills costs money. If you posted a job listing for a CEO job for 40 grand a year for a big company no one with any skills would take it because they would know they could get more somewhere else.

cincybearcat

jeffbr wrote:

I'll agree that "loopholes" should be closed. But some of the above are accounting rules that are part of the overly complex tax code. So how about we get rid of all of the loopholes, and simplify the tax code with a flat tax?

BINGO!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

justam

Kel Varnsen wrote:

Not to mention the average joe gets to go home at night and chill with a beer, while the CEO is essentially on the job 24/7, when you take that into account, and the fact that it is the type of job only a small portion of the population is skilled enough to handle, then yes I think they should be paid accordingly. I mean you don't want some unskilled joker running a Fortune 500 company, you want someone with the skills, but getting somone with the skills costs money. If you posted a job listing for a CEO job for 40 grand a year for a big company no one with any skills would take it because they would know they could get more somewhere else.

There are many, many, jobs that no unskilled joker could do, but they don't get paid that much for their special knowledge.

saveuplife

Strangest Tribe wrote:

can you explain it?

Yep. Supply and Demand set markets. Including the labor market. When government intervenes it creates wage ceilings or floors. These are inefficient. Moreover, taxation in order to accomplish the same result is also inefficient. It's very simple.

cincybearcat

justam wrote:

There are many, many, jobs that no unskilled joker could do, but they don't get paid that much for their special knowledge.

Someone said it right though...average Joe has who depending on him? Some co-workers...family at home...

CEO has all the "average joes" and their families and the Stockholders...

It's certainly a huge responsibility and deserves a MUCH higher salary then Mr & Mrs. Average Joe and Jane. Is it too wide a gap? Personally I think so, but should the government get involved in setting a limit on CEO pay? Hell no.

SundaySilence

jeffbr wrote:

I'll agree that "loopholes" should be closed. But some of the above are accounting rules that are part of the overly complex tax code. So how about we get rid of all of the loopholes, and simplify the tax code with a flat tax?

simplification helps the problem

a flat tax worsens the problem

it is not necessary to institute a flat tax in order to simplify the tax code

jimed14

cincybearcat wrote:

BINGO!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

far from it ... but you and I know our differences here.

A flat tax would be fine if this country's infrastructure was in great shape, if the public school system was fantastic, our government didn't want to fight wars with no end, etc.

But if the top 5% want to keep making exorbitant amounts of money from this country, they can pitch in a little more.

I'm not talking about socialism ... I'm not talking about a complete redistribution of wealth ... I'm not talking about everyone making the same amount, I'm talking about million and billionaires paying a little more tax, pitching in a bit more ... lord knows they can afford it.

cincybearcat

SundaySilence wrote:

it is not necessary to institute a flat tax in order to simplify the tax code

Yes, but they are both good ideas that should be done.

justam

cincybearcat wrote:

Someone said it right though...average Joe has who depending on him? Some co-workers...family at home...

CEO has all the "average joes" and their families and the Stockholders...

It's certainly a huge responsibility and deserves a MUCH higher salary then Mr & Mrs. Average Joe and Jane. Is it too wide a gap? Personally I think so, but should the government get involved in setting a limit on CEO pay? Hell no.

I don't think the responsibility should even be an excuse, because there are much less well compensated jobs that have responsibilty attached and it's ignored come salary time...

The pilot of a plane has a lot of people depending on him.
Hell, the driver of a bus has people depending on him.
Air traffic controllers are responsible for many lives.
An anesthesiologist could kill every patient if he's not doing his job right!!

I don't think the two things you mention are really good enough justification for the glorification of this type of person. It's just GREED.

cincybearcat

jimed14 wrote:

I'm not talking about socialism ... I'm not talking about a complete redistribution of wealth ...

Hahahaha...here we go again!!!!

Spin me right round baby right round....round round...

Anyhow, you are right you are only talking partial socialism and partial redistribution of wealth...that's very different.

know1

Government waste is a much bigger issue to me than what a private company wants to pay its CEO.

Frankly, I don't think it's anyone's business but the owners of the company what they pay people to run their businesses.

know1

Does average joe=anyone not a CEO?