Stats about income inequality are so common today that there’s a risk of people becoming a bit “oh whatever” about it. But the numbers cited at the link below are truly eye-popping. The numbers at the end of the lines below are the multiplier: #1 below, for example, means that Discovery CEO David Zaslav makes 2,282 times as much as his average employee does. He makes $156.1 million per year (or at least did, last year). His employees average $68,387. Most people’s first instinct will be to say, “That’s outrageous!” After all, Zaslav’s labour can’t possibly be 2,282 times more valuable than his average employee, can it? Maybe not. But somebody agreed to pay that price. It’s also arguably silly to pay $500,000 for a car, but some people choose to do that. It would take a lot more digging to figure this one out. Is Zaslav doing a good job of building value for shareholders (and other stakeholders)? Is he that much better than the next available candidate? Does he have friends on the board’s compensation committee? >>>
LINK: These 9 CEOs Make At Least 800 Times More Than Their Employees (by Adele Peters in Fast Company)
The 9 Largest CEO to Median Worker Pay Ratios:
1. Discovery Communications, David Zaslav, 2,282x
2. Chipotle, Steven Ells, 1,524x
3. Chipotle, Montgomery Moran, 1,483x
4. CVS Health, Larry Merlo, 1,054x
5. Starbucks, Howard Schultz, 994x….
What do you think?
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I think as corporations continue to grant their CEO’s with increased compensation, some are of the view a CEO’s pay is based upon the intrinsic amount the corporation believes is right for the position, which I feel is not the case. The intrinsic amount being the compensation that is believed to be suitable solely on the title of the job. Although, I feel corporations have fixed their CEO’s compensation in accordance to comparable businesses, which could contribute to increased salaries, the compensation gap between their CEO and the average worker should be closed. David Zaslav could be creating value for shareholders of Discovery and may possibly be better than the next available candidate but if a company such as Discovery can afford to raise the salary of their CEO by millions, then they should not be restricted from increasing the compensation of their average worker.
What do you mean that “someone agreed to pay that price.?” The “someone,” I guess, is the Board of Directors, over whom the CEO might have considerable influence. There may be a need to alter the process of chartering corporations to enhance the deliberative and representational capacity of Boards. So you may call it a government failure.
Yes, the “someone” is the Board’s compensation committee, and the final line of our first paragraph above mentions just the worry you have in mind. It’s not clear that this is a public policy issue. The boards may not be doing a good job of representing the shareholders who (nominally) elect them, if they’re wasting money on excessive exec comp.
Corporations only exist in their current form through the law of incorporation. The early colonial communities were based on Crown charters. Over time these commercial ventures metamorphosed into local governments with a loosening of property qualifications. State and (provincial?) law continue to shape corporate governance. At least some of the problems of corporate governance arise from deficits in public policy.
As I recall, Adam Smith disapproved of the joint-stock corporation as a whole.
It’s unclear whether to call it a “deficit” in public policy or not. Not all private wrongs should be regulated. I don’t have a strong view on this particular one, but it’s at least plausible that “buyer [or voter] beware” applies to the shareholders here.
Yes, not all private wrongs should be regulated, but certainly a multinational corporation with the capacity to evade national regulation is capable of a sequence of “private” wrongs that assume “public” proportions. The qualifier “private” at times obscures rather than clarifies the character of institutions.
Absolutely. But the topic here is more specific: boards overpaying CEOs, at shareholder expense.
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