Are CEO’s Overpaid?

We just got the news that JP Morgan decided to raise CEO Jamie Dimon’s pay by 35 percent!  He will take home $27 million for 2015! 

The JPMorgan directors think that Jamie is singularly responsible for the rise in their revenue and profits in 2015.  Or they admit that a few other executives have helped. They decided to raise the salaries by some millions of their two operating officers and their asset manager.

How long is this corporate pay rigging going to continue before we have a second French Revolution at the gates of JPMorgan?

Let’s look at some other recent CEO payouts:

  • The CEO of Discovery Communications was paid $156,000,000 or 1,951 times the median worker pay of $80,000.
  • The CEO of Chipotle was paid $28,900,000 or 1,522 times the median worker pay of $19,000.
  • The CEO of CVS was paid $32,400,000 or 1,192 times the median worker pay of $27,139.
  • The CEO of Walmart was paid $25,600,000 or 1,133 times the median worker pay of $22,591.
  • The CEO of McDonald’s was paid $7,290,000 or 644 times the media worker pay of $11,324.

All this raises the question: are CEOs overpaid or are workers underpaid?

The average Fortune 500 CEO takes home $10 million a year.  Would the company be smarter to say to their CEO: “Take $5 million instead of $10 million.  Let us use the $5 million to distribute $1,000 to each of our 5,000 workers.  That would make 5,000 of our company people happier.”   

We haven’t discussed yet Jamie Dimon’s retirement package?  He has a few more years to go before retiring.  In principle, he doesn’t need a retirement package because he has earned so much from JP Morgan over the years.  But he is likely to have already built a huge retirement package.  We can only judge by viewing other CEO retirement packages.  For example, when CEO James Mulva of Conoco Phillips retired, his package included $70 million in retirement benefits and $44 million in deferred compensation.  We can feel a little better by learning that when McDonald’s CEO James Skinner retired, he only received $10 million in retirement benefits and $38 million in deferred compensation.

 If anyone says that we are not creating a New Royal Class in America, their head is in the sand. Maybe we would not care if we didn’t have 15% of our people living in poverty, 9.9% of our people underemployed, and so many wage workers at Wall-Mart who need food stamps in addition to their pay to make it through the week.

 Should we interfere with what companies choose to pay their top managers?  Or should we put a “cap” on the maximum ratio of the CEO’s pay to the median worker in their company?  The Securities and Exchange Commission recently announced that they won’t put a cap but they will require every large company to publish starting in 2017 the CEO pay ratio to the median worker in their company.  This revelation may lead a lot of us to stop buying the brands made by companies who overpay their CEOs.  And workers and unions will welcome this information.

 Or maybe it is better not to interfere with what companies choose to pay.  We have another way to  control the big company payout mania by another method.  Let’s just add more income tax brackets to our current tax system.  Up to now, the top marginal tax rate is 39.6 percent.  My proposal is that for salaries higher than $200,000, we establish the following brackets:

 Brackets                                   Marginal tax rate

 $200,000-$500,000,                       40%        

 $500,000-$1,000,000,                     42%$1,000,000-$5,000,000,      44%

 $5,000,000-$10,000,000                   46%

 Over $10,000,000                          50%

 

My argument is that “trickle down” doesn’t work.  Workers disbenefit rather than benefit from high executive pay.  The economy gets weaker. Why?  Because workers are not paid enough to buy all the output made possible by Capitalism. The poor are too poor to buy much. Low income earners have to borrow to pay their rent because they aren’t getting a living wage.  The middle class is getting smaller and are finding it hard to finance their lifestyle and send their kids to college.

It’s time to stop tempting a Second French Revolution.

 

Postscript

The U.S. Securities and Exchange Commission (SEC) just approved by a 3 to 2 vote along party lines that public companies will have to disclose these pay ratios. Five years earlier under the Dodd-Frank law, the S.E.C. was asked to come up with this measure. Now that it is official and beginning in 2017, public companies will be required to post these numbers.

 Not surprisingly, the U.S. Chamber of Commerce is expected to sue over this rule and get the courts to deny the SEC’s right to require these numbers.

 Many companies had been resisting supplying this information, arguing that the two numbers are difficult and costly to estimate: (a) a CEO’s pay includes salary, bonuses, stock options, restricted stock grants, and long-term incentive payouts, not to mention that a CEO’s pay varies every year, and (b) the median workers’ pay in a multinational corporation differs in different countries and the resulting median number is almost meaningless.

 Probably what is really on their mind is that it will create bad publicity for their company and for capitalism itself. It could make combatants out of their employees, consumers, investor groups and even state governments.