CEO compensation is a favorite bugbear among the class warriors, especially within the context of overall income disparity. I’ve seen people, with utter sincerity and great earnestness, propose capping CEO compensation to some multiple of the lowest paid employee in a company, simply because “fair.” Yet CEO’s, at least the ones that earn the ire of the envious, are few. The census bureau reports that fewer than 1000 companies have 10,000 or more employees. Certainly, there are multimillionaires who aren’t heading up big companies, but if you ask the man on the street who he thinks of when “CEO” is mentioned, I’m sure most responses will be along the lines of “the guy running GM or GE or ExxonMobil.” A USA Today article from 2012 reported that the CEO of a typical public company earned just under $10M that year. I won’t delve into the statistical distribution of those incomes, apart from mentioning that the outliers at the top end certainly affect the average. Suffice to note that the number of CEOs covered by this metric is very likely in the low thousands or even high hundreds. Not a lot of people.
Publicly released tax information indicates that the top 0.01% of earners, numbering about 14,000, earn about $10 million or more per year. The top 0.1%, a club you need a minimum income of $1.7M per year to join, number 140,000. Obviously, not all top earners are CEOs, yet squawks about income disparity often involve CEOs. Which suggests the question, “why are high-earning CEOs singled out?”
One possibility is that the stereotype of the CEO is an easy one to personalize and vilify. If you’re making political arguments, cold rationality doesn’t hold a candle to emotional manipulation. In other words, it’s easier to make a case that riles people up when you can put a face to the bad guy. This is certainly part of the story, but I suspect there’s more.
Every so often, a news or opinion piece will cover compensation of those who’ve failed to perform, noting that they’re getting their money even though the companies they run are underperforming or laying off. Rarely is this covered without the implication that those earnings are undeserved. How does this reconcile with the relative lack of denouncement of other highly paid people who’ve failed to perform? When an elite athlete has a lousy season, when a movie star’s latest film flops, when a singer or band’s newest release fails to sell, when a star book writer’s latest tome fails to even recoup the advance the publisher paid, the outcries about their overcompensation are rarer and less shrill. Oftentimes, it’s the people who paid them who are castigated as having made poor choices or bad bets, rather than the earner not fulfilling the expectation associated with his compensation.
On top of that, those under-performers don’t suffer hits to their personal reputations. Adam Sandler, Forbes Magazine’s most ‘overpaid’ actor, has produced a long list of box office successes, but he’s also got almost as long a list of flops. I doubt, however, that many people would think poorly of Sandler for continuing to ask for the salary he’s used to receiving. Ryan Howard, first baseman for the Philadelphia Phillies, is earning $25M a year and producing worse than an “average” first baseman. Sure, the infamously hostile fans in Philadelphia will let him and everyone else know that he’s a “bum,” but generally speaking they’re not going to consider him evil for continuing to take a salary he’s contracted to receive. More likely they’ll take their wrath out on the general manager who agreed to that contract. The reputation of the nameless CEO, by contrast, starts off low simply because he’s a highly paid CEO.
We might thus conclude that, in the court of public opinion, there are good and bad types of income, that if an individual reaches that top 0.01% the “right” way, he’s OK in people’s eyes. Sandler’s fat paydays aren’t going to be judged in comparison to the rank and file workers on the set or in the production company, even though a flop of a movie certainly doesn’t improve their employment prospects. In contrast, people always talk about how much more money the rank and file might make if a CEO wasn’t so grossly overcompensated.
One can also land in the “good” column by doing the correct things with one’s money, or saying the right things despite the way one’s wealth was earned. George Soros has made his billions working the angles of the markets, speculating on currencies, commodities and the like. Some of these activities provide benefit to capital markets, but they’re not exactly a “lets make stuff that people want” sort of productivity. Then there are the widespread allegations of currency manipulation for personal gain – not exactly white-hat stuff. Soros is widely recognized as a major wielder of money to influence politics, especially via 527 groups where money becomes hard to trace or follow. Yet while billionaire money in politics is widely decried, in many circles Soros is revered for being on the “correct” side of issues i.e. progressivism and big-government.
Contrast Soros with Charles and David Koch, the notorious Koch brothers, who according to the american Left are among the worst people on the planet. The Kochs made their billions in petroleum, minerals, chemicals and associated manufacturing. In other words, by making stuff that people want. They’re also politically active, funding think tanks and supporting PACs, which makes them no different than Soros and many other billionaires. Among the liberty-minded, they are the Good Guys, because their political activities focus on liberty. They’re major funders for libertarian-leaning organizations such as the Cato Institute, the Mercatus Center and the Reason Foundation.
Soros and the Kochs both have their detractors, as should be expected. The real difference, however, can be seen in public reaction to philanthropy. Both Soros and the Kochs are extremely philanthropic, with hundreds of millions in donations to various causes. If you read the news, however, you will find controversy surrounding charitable donations made by the Kochs, where none such is spoken of regarding Soros. The Kochs’ gift of $100M to New York Presbyterian Hospital was met with cries of outrage from liberal-leaning groups, who demanded it be refused. Similarly a $25M gift to the United Negro College fund “inspired” a union to end its support for the organization. Smaller donations have elicited similarly hyperbolic responses.
So it goes with other billionaires. Some are well-regarded despite the means by which they made their money, and some are poorly regarded no matter what good they seek to do with their money. Some are held in high esteem, no matter their failure to “earn” the money they’re paid, others are presumed to be the spawn of Satan, with their success and largesse having no countervailing effect.
The mass media and the press get a lot of mileage out of vilifying the rich. Populism and envy politics sell papers and get votes. They also get a lot of mileage out of showing off the rich and famous. Lifestyle envy also sells papers. Paris Hilton and her $100M net worth wouldn’t be notable but for the symbiotic relationship she has with the press. Kim Kardashian made $28M last year thanks to the media feeding public obsession. Therein lies the lesson – the media are there to sell to the public. Their goals might be monetary, they might be political, or they might be a mix of both and other factors. In selling, they influence public opinion. There are underlying facts, of course. “Michael Bloomberg” is a rallying cry for gun rights advocates for good reason. Yet when the liberal press uses the generic concept of CEO compensation as a class warfare hot-button, we should wonder why they’ve decided that, with broad-brush strokes, CEOs are overpaid. Especially when so many other 0.1%ers are given a pass.
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