The Widdershins

495 to 1…

Posted on: September 3, 2013

Good Tuesday morning Widdershins. Here’s hoping your weekend was a great one and merely a precursor to an even better week.

The day after Labor Day seemed like a good time to look at the ever-widening salary gap between CEOs and their ceo pictureemployees. This information was to be easily reviewed under the provisions of the Dodd-Frank legislation, but after three years the data has not been forthcoming.

The Securities and Exchange Commission was charged with the task of formulating the rule to calculate and report the ratio, but questions raised by the business community and their lobbyists have forestalled the rule-making, and thus the reporting. It seems the business community doesn’t believe the information would serve any useful purpose — not a surprising stance.

Bloomberg News therefore took on the task. The methodology of Bloomberg utilized differences between industries and included employee benefits in their calculations. Other groups such as the AFL-CIO have calculated the ratios as well without utilizing these differences. The effect is that the Bloomberg ratios are smaller, but even with the smaller differentials, the results are staggering.

Bloomberg compiled a list of 100 companies. The average of the top 100 companies on Bloomberg’s calculations is 495 — meaning that the CEOs of the companies averaged 495 times the income of the non-supervisory workers in their particular industries. You can see the full list here, but here are ten randomly selected.

These ten will list the name of the company, the CEO salary/the average worker salary, and the CEO-to-Worker ratio.

J.C. Penney     $53.3m/$29.7k     1,795
Simon Property Group     $137.2m/$86.0k     1,594
Yum!Brands     $20.4m/$24.9k     819
Wal-Mart Stores     $18.1m/$29.7k     611
ExxonMobil     $34.9m/$66.6k     524
General Electric     $25.8m/$52.5k     491
Pfizer     $25.6m/$65.1k     394
Ford Motor     $29.5m/$75.6k     390
Union Pacific     $19.1m/$52.4k     365
McDonald’s     $8.8m/$24.9k     351

For the last thirty years, these ratios have become larger. Their growth correlates with the widening income gap across industries and the virtual flatness of income growth for those at the bottom of the wage scale. Along with this has come the narrowing of the middle class.

Peter Drucker, the celebrated management theorist and author started talking about the discrepancy as early as 1977 and continued railing against the widening gap until his death in 2005. Drucker believed a 25-to-1 or even a 20-to-1 ratio was appropriate.

Drucker noted that the damage to the long-term health of companies was not centered on those populating the plant floors because, “They’re convinced that their bosses are crooks anyway.” His more pressing concern were those in middle management who become “incredibly disillusioned” by runaway executive compensation.

Drucker’s opinion was aligned four-square with the generally held opinions of the public-at-large over the exorbitant paydays of venture capitalists. When big executive payouts coincide with layoffs and layers of bankrupting debt, as Drucker said, it is “morally unforgivable.”

The easiest and least thoughtful response posited by those who resist bringing some semblance of sanity to these practices is, “Business is in the business of making money, not social welfare.”

costcoTo those naysayers, meet Costco. Costco pays its hourly workers an average of $20.89 an hour, not including overtime versus the minimum wage of $7.25 an hour. Eighty-eight percent of Costco employee have company-sponsored health insurance. Costco workers with coverage pay premiums that amount to less than 10 percent of the overall cost of their plans.

“Yeah, but what about the bottom line,” say the naysayers? Costco has thrived in the last five years. Its sales have grown 39 percent and its stock price has doubled since 2009. The share price is up 30 percent under the leadership if its new, home-grown CEO who ascended from the ranks of box boys. When the great recession hit in 2009 and other retailers began to cut, Costco instead raised salaries $1.50 an hour over three years.

When asked about these practices, the leadership of Costco replies, “Could Costco make more money if the average wage was two or three dollars lower? The answer is yes. But we’re not going to do it.“

As an added note, Costco furnishes its boardroom with Ikea-type faux-wood tables, has no PR staff, and doesn’t offer customers shopping bags, but its employees are incredibly loyal. By the way, Costco’s CEO earned $650,000 in 2012 and his predecessor earned $325,000 a year.

Not surprisingly, Costco’s experience and the advice of Drucker are consistent with new research on employee engagement. Salary is not a driver of employee engagement, but can be a driver of disengagement. In other words, salary is secondary indicator of engagement to things such as having a good manager, having someone who cares about you as a person, knowing what is expected of you, and even having a best friend at work.

Sometimes the simplest of lessons don’t take a lot of research — I’d venture the odds of this being true are about 495-to-1.

This is an open thread.

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20 Responses to "495 to 1…"

Wonderful post. So true. In the past, I sided with the CEO’s and felt that if the business could make it, so be it. They could pay their leaders whatever the wanted. However since becoming aware of the differences of the worker’s salaries, the CEO’s could give up some of their salary. It is only the right thing to do. After all, how much is enough?

Agree completely. Whenever this obscene ratio is questiones, all one hears is “That’s what it takes to get good people”. Ergo, the poor wages that company workers earn also speak volumes of how the corporation views them?

J.C. Penney $53.3m

And the company is (once again?) going into the dumper. I saw their sales are off horribly.

Costco is getting a store ready to open in nola. It’s going to be interesting to see how they do there. My neighbor from there said the cost to join them is more expensive than the cost of joining Sams.

Well I just went to the costco website and their individual membership is only $10/yr. more than Sams.

@1, knod, welcome to our little corner of the blogisphere. Thanks for your comments. Your sentiments of, “How much is enough,” are indeed the intrinsic heart of this issue.

@2, Chat, indeed, the logic of the defenders of this corporate largesse falls apart when it comes to customer/client facing employees. Your logic is so irrefutable, don’t be surprised if you don’t see it again in one of my posts — it will have the appropriate copyright attribution.

@3, Fredster, the CEO of Penney’s who was paid $53 Million was also the one summarily dismissed. He was the former Apple store marketing guru who brought the ideas of abolishing coupons and having clerks carrying checkout apparatus on the floor without the clerks having an ability to also carry bags for the goods. His idea of treating Penney’s customers as Apple customers lacked a customer awareness along the lines of “New Coke.”

I apologize for not contributing more. Just one of those days.

cant brain

@5, Fredster, from the article about Costco:

Bill Durling, a spokesman for Sam’s Club notes that Costco charges a higher annual membership fee than Sam’s Club, $55 vs. $45…(clip)…

After accounting for expenses such as real estate costs and wages, Costco barely ekes out a profit on many of its products. Eighty percent of its gross profit comes from membership fees; customers renew their memberships at a rate of close to 90 percent, the company says. It raised its fee by 10 percent in 2011 to few complaints…(clip)…

Jelinek (Costco’s CEO) recently canceled an effort to up-sell shoppers on the $110-per-year executive club membership while they were waiting in line — “We were starting to alienate people. This isn’t Harvard grad stuff. We sell quality stuff at the best possible price. If you treat consumers with respect and treat employees with respect, good things are going to happen to you.”

More businesses should heed his message.

@9, Fredster, no problem — I’ve been woefully absent over the past weekend.

Prolix@11: Geez it took me 20 minutes to get the damned image to go into that comment! 👿

I had to delete it from the library and then add it back in. DOH!

@9: Moi aussi.

Prolix@10: I wouldn’t mind paying an add’l $10/yr if they had more products that I need or am interested in. I saw on their site they have the executive level mbrship but I didn’t check to see what you get for the extra costs. Sams has something similar and I believe one of the benefits there is that you have access to more prescription meds at a discount. I may call the local warehouse in nola and ask about being able to get in for a look-see first before joining.

beata@13: I understand fully!

Costco is a nice store, good prices. The one near me is always busy. They don’t give you bags, but they have tons of boxes (empties, from the various products they sell) and you can load your stuff up in the boxes.

I’ve never been to a Sams. We went in a Walmart once to see what it was like. It was dirty, had tons of crap, and I didn’t think the prices were that great. An employee there used my sis’ debit card and charged up a bunch of stuff. They stole her identity actually. She is still fighting it.

Fredster, we are also on “dumb”. And tired. We’ve had a week of hot, humid weather after a beautifully mild summer. We socal wimps can’t handle it!

Breaking…Ariel Castro found dead in his cell. He hanged himself, apparently.

Prolix, great post, but its so depressing to see this trend continuing. When will these asshats realize they are destroying the country, and their fellow citizens. Laker thinks there will be another revolution in his lifetime.

socal@16: Sams is like Costco in that there are no bags but yeah, plenty of boxes.

on the weather: we had an unusually mild summer here in AL but then the last 3 or 4 days were in the 90s and humid too. Now we’ve had a front pass through and the lows are supposed to be in the 60s. How nice!

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