Ever wondered if recycling is worth it? Or how store brands stack up against name brands? What do you wonder? Let us know. What do the CEOs of big companies actually do all day? There are studies that say CEOs make times the wage of an average employee at their company. Are CEOs really adding times as much value?
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Big bucks to be sure. And a big change since , when the ratio was just But what does it mean? What it means, as the EPI economists carefully document, is that the top US corporate chiefs are paid overwhelmingly with stock options, and their income fluctuates with the market. So they cashed in. The US numbers have shock value. But bear in mind that they reflect not only the way companies are run, but also changes over decades in the structure of the US economy and tax law, specifically the rise of market valuations in technology and finance at the expense of the major industrial corporations, and a corresponding decline in unions, which held down the ratios in the sectors the industrial firms dominated a half century back. Plus, there is the radical decline in top marginal tax rates on income and capital gains, beginning in , which gave executives strong reasons to restructure their pay away from inside-the-corporation perks the penthouses and country clubs of yore and toward cash and capital assets. The reliance of tech firms on venture capital and bubble psychology, rather than cash flow, deepened this trend. Further, we know about the CEOs because they head public companies — not hedge funds or private equity firms — and the SEC can under mandate of law oblige disclosure of how executives and workers are paid.
Big, Bigger, Biggest
Is the US really so exceptional? Compared to Japan, probably so; the Japanese have largely retained the successful industrial model that displaced major American industrial firms a generation back. This has been the mantra of finance economists since the s — maximize shareholder value! Let the market decide! Let the workers and the consumers and the public fend for themselves! The mantra has produced a world of corporate predators, looters and asset strippers, of technology and bank wealth on the coasts and industrial wastelands in between. In our era of quantitative easing and tax cuts to fuel stock buybacks, it has led to government policies aimed at making the stock market boom, while the corporations and their customers pile up the resulting debts. And so we have a country of wealth, dynamism and power, afflicted by decay, displacement, unemployment, foreclosures and blight — a country riven by resentments and anger and capable of believing the nostrums and bluster of Donald J Trump.
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It is fashionable today to bash Big Business. And there is one issue on which the many critics agree: CEO pay. But the more likely truth is CEO pay is largely caused by intense competition. While individual cases of overpayment definitely exist, in general, the determinants of CEO pay are not so mysterious and not so mired in corruption. In fact, overall CEO compensation for the top companies rises pretty much in lockstep with the value of those companies on the stock market. The best model for understanding the growth of CEO pay, though, is that of limited CEO talent in a world where business opportunities for the top firms are growing rapidly. They also need better public relations skills than their predecessors, as the costs of even a minor slipup can be significant. To lead in that system requires knowledge that is fairly mind-boggling.
Why Do CEOs Make So Much Money?
Take a few strokes off your game without leaving your office! Unable to access microphone. Explore by topics. Auto Transcript Auto Transcript. We’re not going to try to understand the music theory behind negative harmony, but we do really enjoy this version of the Simon and Garfunkel classic. Add to wordbook.
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We can’t imagine how insanely difficult this must have been to create, but we’re so glad someone had that kind of time. The air-to-air footage of this Ukrainian Air Force Su in flight takes our breath away. Auto pause — Delay showing subtitle Q. But it was away from the frontlines that he came to value a universal right: having a patch to call one’s. Ooops, video not available. The larger issue of growing inequity in the Western world is a tough one to tackle; the forces of globalization that have led to stagnating wages aren’t going to disappear. Explore by topics. Install eJOY eXtension to build your vocabulary. Why companies like Microsoft and Apple want you to stop using passwords. Pause Space.
The Most Valuable Employees Deserve the Highest Pay
One of the most startling things about the post-crisis landscape is how tone-deaf the wealthiest Americans remain to outrage over their Croesus-like pay packages. The award for complete obliviousness would have to go to Blackstone cofounder Stephen Schwarzman, who earlier this summer compared government attempts to raise taxes on financiers such as himself to Hitler’s invasion of Poland. Silver medals should certainly be handed out to the many executives and corporate lawyers who were grousing last week about the new Dodd-Frank bill, which includes a rule requiring companies to disclose the difference in pay between their chief executive and their lowest-level workers.
It would be a «logistical nightmare,» these titans of industry wailed, for firms to compile this information. Well, maybe, but if you issue pay stubs, surely you can tally them up and perhaps keep a few more workers on board to do just.
The real nightmare will be when the public sees the numbers, which will illuminate just how egregious the U. While CEO pay is indeed down from its pre-crisis highs init’s still double what it was in the s, and eight times the level in the s.
Meanwhile, American workers are taking home less in real weekly wages than they did in the s. So much for the idea that the financial crisis would somehow even things up by wiping out a good chunk of the paper wealth of the plutocrats.
Indeed, stock prices have surged so much since last year that many CEOs, who receive a good chunk of their pay in equity, are wealthier than ever. Such facts are inevitably followed by the impossible-to-answer question, do they deserve it? While the corporate world has certainly gotten more complex over the last 50 years, it’s hard to make the case that CEOs themselves have gotten any smarter, or that investors are doing a better job of judging a CEO’s success. Compensation levels are all too often driven by short-term thinking.
The CEOs of the 50 firms that laid off the most workers since the onset of the economic crisis took home 42 percent more pay in than their peers did—largely because cutting workers boosts short-term profits and appeals to Wall Street. Yet a growing body of academic research suggests that downsizing doesn’t always lead to increased profitability over the longer haul, or even lower costs. While one can argue the merits of layoffs on a company-by-company basis, what’s striking is that the executives who are the most willing to ax workers also seem to be the least likely to tighten their own belts.
Management guru Peter Drucker once noted that after CEO-to-worker pay ratios went above 25—1, major moral questions started to be raised. It will be hard to make employees believe that «we’re all in this together» when it becomes clear in public documents that company leaders have largely insulated themselves from any financial risk. The larger issue of growing inequity in the Western world is a tough one to tackle; the forces of globalization that have led to stagnating wages aren’t going to disappear.
But executive pay could be made fairer and more transparent. For starters, corporate America might take a page out of the European playbook. In countries like Germany, which boasts many of the world’s most competitive and productive companies, worker representatives often sit on corporate boards, providing a check against bloated pay packages. On the other hand, U. That’s why politicians might consider getting rid of tax rules that let companies write off unlimited amounts of corporate compensation.
And whatever arguments there might be about the complexity of the Dodd-Frank rules, the notion of publishing pay numbers is a good one. If nothing else, it could be the starting point of a conversation in which America’s business leaders explain, to their shareholders and to the wider public, exactly why they need so much money to get the job.
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Get a Live Demo. Chief executive officers CEOs get paid lots of money for being the top employees in the company. Why do they get paid so much? Like athletes and actors, CEOs provide a level of talent that is required to produce the desired product — in this case, a strongly performing company. The skills and responsibilities that come with the job of CEO are extreme and the number of people who can fill these roles is limited. That is why the market has determined that people with these skills are worth a lot of money to their companies. The rationale is that if the company is performing well and the shareholders are making money, then the CEO should share in that success. Often it can be considered the yardstick by which all other employee benefits and bonuses are measured and negotiated. This performance, in turn, could translate into a more generous compensation package for individual employees who are savvy negotiators. When companies establish why do ceos make so much money structures, they define the compensation for the highest- and lowest-paying jobs before filling in the compensation for the jobs that fall in .
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