Robert Reich Hurts His Own Brain

So this was the argument from Robert Reich.  I left in the grammar mistakes.  Sorry Bob, there is no need to express the possessive in the phrase “arms race”:

“The typical CEO of America's largest companies and banks is now earning more than 475 times what America's average worker is paid. Fifty years ago, it was 40 times. This meteoric rise isn’t because CEO’s are “worth” it but because their boards want to give them more than the CEOs they compete with, giving the firm bragging rights on the Street and ensuring that the CEO will stay put. But this has resulting in an escalating arm’s (sic) race. And because CEO pay is fully deductible from corporate taxes, taxpayers are subsidizing this arm’s (sic) race -- even as median household income drops. In the table below you can see the ratio of CEO pay to average workers in the U.S. compared to other countries.

 Republican David Camp, chair of the House Ways and Means Committee, recently proposed a way to stop this arm’s (sic) race: by not allowing corporations to deduct from their taxes CEO pay in excess of $1 million. That’s a good start. But how about going a step further and imposing an ‘excessive pay’ surtax on corporations whose CEO pay exceeds 100 times that the average American worker?”

 And this was the chart:

 This is all fairly compelling for the people who graze on what Reich sows: Those rotten CEOs; something must be done about their pay.  

Problem One for Bob and his followers is that the conclusion is largely a crock, and an easily disprovable one at that.  Problem Two is that this is nobody’s business except for Stockholders, and it sure as Hell isn’t something that Republican congresspersons ought to be advocating.

Let’s start with the central premise and the chart.  They’re bogus.   Per the 2008 Census, there are 981 companies of 10,000 employees or more in the US. Even if the 475 multiple is right (and it's not), that's an average CEO salary of $23 Million vs. an average employee salary of $46K. So let's say CEO compensation is 981 * $23 Mil = $22.5 Billion. So what? Big CEO pay is around 1/1000th of our GDP. Cut their pay in half and give it away and everybody in America gets a check for $68.

Now for the blatant falsehoods: Forbes lists total compensation for the Top 100 CEOs in America. Number 50 (William Johnson of Heinz), made $21 Million. Number 100 made $15.3 Mil. Oil & Gas CEOs get paid better than any other industry, and their average pay in 2012 per the WSJ was $13.6 Mil. Average CEO pay for the Top 1000 is closer to $5 Million. Average CEO pay across the board is well under $1 Million. That means that CEOs on average earn far less than 20 times what the average worker makes.

And the pay of foreign execs is vastly understated. The Top 100 Euro execs averaged $6 Mil in 2012, or roughly half their American counterparts, and that doesn’t even begin to take into account the off the books perks so typical of foreign tycoons, and particularly the Japanese. The Japanese and Euros are also far less transparent about the effect of stock and options on their Execs’ pay packages, whereas American corporations are an open book.

Bottom line, this chart is what happens when you blindly accept as fact the bilge that emanates from the AFL-CIO or the Huffington Post. This research took me one hour to do whilst I drank my coffee.

Take the high end of $13 Mil against an average employee base of 20,000 for Top 981 firms, divide by two and each employee gets an extra $6 per week in their paychecks. Hot Dog! Now Grandma can get that operation!

Teresa - I proposed that if somebody confiscated half the $13 Mil average pay ($6.5 Mil) and gave it to the 20,000 employees (rough average of size of the top 1000 companies with 10,000+ employees), you come out to about six bucks per week ($325 per year). Sorry, I can't make the calculator tell me anything different. And the employees of Top 100 corporations make waaaay more than smaller firms, averaging over $50K per year per employee. One of the reasons is that they have megabuck chairpersons making the company boodles of money. As to your generous offer to allow them to live comfortably, you view economic activity as a zero sum game. It's not.

I did make one mistake: average employment at a Top 1000 firm is 34,000 employees, not 20,000. That means if you took half the CEO’s pay and divvied it up, it would add $3.81 to each employee’s weekly paycheck. Here’s the figures:

Not that I am completely down on Reich’s populism: he did an article on the pay of hedge fund managers and I am with him.  The Money Changers do nothing but crowd around their tables in the Temple.  They should all be driven into the sea, but the minute that happens, the Democrats lose the second biggest source of funding for their political campaigns. 

https://www.census.gov/econ/smallbus.html

http://www.forbes.com/.../12/ceo-compensation-12_rank.html
http://online.wsj.com/.../SB10001424052748703864204576313...
http://www.businessweek.com/.../feb.../gb20090210_949408.htm
http://www.aflcio.org/Corporate-Watch/CEO-Pay-and-You
http://www.huffingtonpost.com/tag/executive-pay