May 21, 2016

Addressing Income Inequality (v2): CEO Pay

The other day I posted the first in a series on income inequality, since it's probably the biggest issue this election season.

For Bernie Sanders, it sometimes seems to be the only issue, although I thought there was one debate where he said the single biggest issue facing our country was climate change; I could be wrong.  For Hillary Clinton, income inequality has become a larger issue than she might have hoped, particularly when the Sanders camp is hitting her speaking engagement income. 

One of the things we hear an awful lot about is the fact that millionaires and billionaires, the 1%, are getting almost all of the new income and getting more and more obscenely rich; the rest of us, the 99% are struggling and barely keeping our heads above water - actually, or in comparison, or at least in perception. 

My first post was about the minimum wage, with a little extra thrown in about the new Obama administration overtime rules that will go into effect on December 1st.  Tonight, let's take a look at what people earn.

First, some general understanding, things we think we know to be true, or believe to be true:

  • CEOs make a lot of money;
  • the ratio of CEO salary to worker salary is skewed;
  • the top 1% make a lot of money

But what do those generally understood concepts mean? What happens if we put some numbers around the concepts?
  • In 2014, for example, average CEO pay (including stock options and all the rest) at the largest 350 companies  was $16.3M
  • That ratio of CEO to worker salary?  That was about 300 to 1.
  • To be in the top 10% (according to IRS data from 2013), you only needed adjusted gross income of $128K
  • To be in the top 1%, the figure was $429K
  • To be in the top .1%, it's $1.9M
  • To be in the top .01%, it's a mere $9.5M

Is it shocking to you that the minimum adjusted gross income requirements to be in these upper echelons are so low? It was to me.  Things get even more interesting when you look at CEO pay versus pay other people's pay.

First, here are the top 5 CEOs based on total compensation, as of 2014 (details on how the numbers were derived and what companies were included is in the small print in the article):
  1. David Zaslaw, CEO of Discovery Communications (the Discovery Channel and others): $11M salary, $145 other compensation (stock options, bonuses, etc.)
  2. Michael Fries, CEO of Liberty Global, which provides cable service in 14 countries: $16.M salary, $95.9 other compensation
  3. Mario Gabelli, CEO GAMCO Investors, a company founded by Gabelli back in the 1970s, which manages close to $40B in assets: $88.5M
  4. Satya Nardella, CEO of Microsoft, a company with over $90B revenue: $4.5M salary, $79.8M other compensation
  5. Nick Woodman, CEO and founder of Go Pro, the cool cameras; $2.7M salary, $74.7M other compensation
No question about it -- that's a lot of money. Not so much the salaries, which don't bother me all that much - but the 'other compensation' adds a ton of money and it does seem hard to justify. 

Let's look at some other 'lots of money' buckets, which seem a lot harder to justify, in my mind. Take college basketball coaches:
  1. Coach K, Duke University: $7,299,666
  2. John Calipari, Kentucky: $6,875,376
  3. Sean Miller, Arizona: $4,945,664
  4. Bill Seif, Kansas: $4,943,776
  5. Tom Izzo, Michigan State: $4,150,359
Syracuse's Jim Boeheim was only No. 20 on the list, with a paltry $2,144,284.

NFL players for 2015?
  1. Green Bay's Aaron Rodgers: $22M, $110M over five years
  2. Seattle's Russel Wilson: $21.9M, $87.6M over four years
  3. Pittsburgh's Ben Roethlisberger: $21.85M, $87.4M over four year
  4. The Giants' Eli Manning: $21.8M, $84M over four years
  5. Carolina's Cam Newton: $20.8M, part of a five year, $103M deal
How about Major League Baseball? Here's your top five in 2015:
  1. Clayton Kershaw, with the Dodgers: $32.8M, part of a $215M deal
  2. David Price, Red Sox: $30.5M, part of a $217M deal
  3. Miguel Cabrera, Detroit Tigers: $30M, part of a $248M deal
  4. Justin Verlander, Tigers: $28.6M
  5. Yoenis Cespedes, NY Mets: $28.1M
TV personalities?  In the year spanning June 2014 - June 2015, Howard Stern made $95M; Ellen DeGeneres $75M; Dr Phil $70M, Gordon Ramsay, the cursing chef, and Ryan Seacrest both made $60M.

Actors? Good lord, it's nuts: Robert Downey Jr's $80M? Jackie Chan, $50M? Bradley Cooper, $41.5M?  

There are examples all over the place. News anchors?  ABC made a nine-figure deal with George Stephanopoulos. NBC pays Matt Lauer $20M.

Kim Kardashian made $52.5M in 2015.

So  in the overall scheme of things, do we really pay CEOs too much? Or do we pay lots of people too much?