[quote=harvey]
What percentage of a typical large company’s profits go to CEO compensation? In other words, even if the “value” of a CEO was “zero” and we took all of their compensation away to reflect that, how much difference would it make to the bottom line of the company?
To use some rough numbers:
I found that the average CEO pay at the S&P500 is about 10 million, which means that CEO compensation costs the S&P500 about $5 billion per year.
The total income annual income for the S&P500 is about a trillion dollars.
So, in the aggregate, CEO compensation accounts for about half-a-percent of the total income of these corporations.
These data I’m using is pretty rough, but even if the numbers were off by quite a bit, the point is still made. CEO compensation just doesn’t impact investment returns much at all (their performance does, or course, but that’s a different issue.)
If we want to claim something is an economic problem, then we have to have some objective way to measure the magnitude of the problem. CEO pay rates very high on the “distasteful” scale, but the actual economic impact of their compensation – even if it were 100% “waste” – is insignificant.[/quote]
harvey, c’mon… this is a massive straw man argument. Of course you’re right here but the point of this thread is wealth/income inequality, which is why CEO, and to a larger extent senior management, compensation in general, is an issue. This graph just covers CEO compensation but you’d see the same trend lines with slightly lower ratios if the graph was labeled “Ratio of Senior Management Compensation to Average Worker Compensation.”
The problem is not one of its impact on corporate profits. The problem is a social one – you have a group of senior executives at the vast majority of public companies who are dramatically overpaid relative to their contribution to the company, which engenders greater income inequality… which is bad for society. Yes, capitalism is going to lead to some degree of income inequality – that’s inevitable – and not an altogether bad thing. But when “crony capitalism” leads to the *dramatic* level of inequality that we see today… that’s bad policy for everyone, in my view, because the masses get restless, with all that implies.
In hindsight, although they weren’t capitalists, I’m sure the Romanovs wished they had been a little more generous with their own ill-gotten lucre. Personally, I’d rather pay higher taxes and have a civil society than spend my time looking over my shoulder.
