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Arguments for sky-high CEO pay fall flat in face of stark evidence

Published: Fri, May 9, 2014 @ 12:00 a.m.

Arguments for sky-high CEO pay fall flat in face of stark evidence

Debates over whether CEOs for U.S. corporations get paid too much are re-emerging and rightfully so. U.S. CEOs of Fortune 500 companies are compensated over 200 times that of their employees.

There are two arguments in defense of these gross salaries. The first is that of supply and demand: very few people can do what CEOs do, so paying them 200 times more than their employees is justified. That’s true. But what this argument fails to note is that executives are paid in the form of salary and equity (ownership in the company).

Given the huge ownership stakes executives have, any salary is excessive. The perfect example is Larry Ellison of Oracle. He owns $45 billion worth of Oracle stock, and is paid $78.4 million in annual salary ($10.74 per second!) on top of that.

The minimum wage is $7.25 an hour. For Larry Ellison and other similar CEOs, a mere $1 of salary is excessive; Ellison can simply sell 1 percent of his shares and retire for life.

Another argument in defense of these salaries is that shareholders and the board set the salaries, and a company is free to choose whatever it wants. But when too much wealth is concentrated in the hands of one class of society (e.g., the top 1 percent, including CEOs), economies stagnate and fail to deliver.

Here are a couple of examples how these salaries are unfair and detrimental to our economy: $78.4 million is 1,742 salaries at a wage of $45,000 year. Ellison’s salary, divvied up among 1,742 families, is far more beneficial to our society than giving it to someone who doesn’t even notice it in his bank account.

And in 2011, the board of JP Morgan voted to increase its CEO’s bonus by 20 percent and slash the wages of thousands of bank tellers by 50 percent. This is called “reverse Robin Hood” — taking money away from those who live paycheck to paycheck and giving it to someone who doesn’t notice the difference.

Kenneth Feinberg, special master of executive compensation, noted that the “populist outrage” over executive compensation has unfortunately made CEOs the “victims”. But he has it backwards. The CEOs aren’t the victims. We the people are.

Hanna Kassis, Chicago

Kassis is a certified public accountant, former Girard resident and former adjunct professor in economics at Youngstown State University.


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