The E-mail Commentary from Eco-Justice Ministries
CEO Pay Is More than Enough
In the United States, we're heading into the Labor Day weekend. This holiday marks "the end of summer", and it is observed with all sorts of traditional practices like picnics, and a quick vacation trip to wrap up the season.
Oh, there is another thing. For some people, Labor Day is an occasion to celebrate "labor." The traditions vary. For some, the focus is on unionized workers; others recognize all those folk who do the day-in-day-out production that has created our prosperous society.
The situation for workers today is far from perfect, but compared to a century ago, the current standards for minimum wages and decent working conditions represent a vast improvement. The progress toward justice and dignity for those who labor should be celebrated this weekend.
My thoughts for Labor Day this year, though, are drawn to the other side of the worker/employer relationship. I am shocked and disturbed by the genuinely obscene differences in pay between corporate executives and average workers.
Ed Smith, a Chicago Alderman, made the claim that the CEO of WalMart makes as much in an hour ($16,826.92) as one of the store's average workers makes in a year. Smith's calculations might be off, but is it really any different if the CEO has to spend 90 minutes at his desk to earn what a floor worker makes in a year?
Lots of academics and interest groups have tried to sort out the ratio between executive compensation and worker pay. It is hard to analyze, because the bosses get such a complex mix of salary, bonuses, stock options and benefits. The figures vary depending on which group of elite execs is being studied. But a typical calculation with the most recent figures says that CEOs in 2010 brought home 343 times as much as their employees. That's down from the 2000 high, where the ratio was 525 times, but it is still astronomically higher than 1980, when the ratio was a much more modest 42.
In 2010, the Chief Executive of a Standard & Poor's 500 Index company received, on average, $11.4 million in total compensation. To put that into perspective , the AFL-CIO website looks at how many workers could be supported by that pay. Some of their examples: 8 Nobel prize winners, 28 US presidents, 225 teachers, or 753 minimum wage workers.
What might we lift up as a more appropriate pay scale? In 1984, business guru Peter Drucker proposed a standard that the CEO should earn no more than 20 times what the ordinar worker gets. Eleanor Bloxham noted that, "if the average worker at a company earned $100,000, a board concerned with the same moral and social issues that concerned Drucker would limit the CEO's pay to $2 million or less." She says that only 4% of the companies in a recent survey would meet that standard this year.
Sociologist William Domhoff discusses the disparities of CEO pay ratios in a fascinating, detailed (and lengthy!) article on "Wealth, Income and Power". Figure 8 traces those ratios from 1960 to the present.
The soaring income of executives has been attributed to many factors. The corporate boards that set salaries are often made up of interlocking directorates where there is an incentive for everybody to boost their buddy's pay in a self-reinforcing cycle. Lower tax rates for the wealthy staring in the 1980s made the higher pay much more lucrative. And some experts say that the declining influence of labor unions also is a factor in higher CEO pay. For decades, unions had helped to share a "moral economy" by reinforcing “fairness” as a leading social value with a firm institutional foundation. The weakening of that fairness principle has allowed the disproportionate wealth of executive to receive less scrutuny.
That is changing, though. Recent events have triggered critiques and scrutiny of the corporate elite's excessive income. It didn't sit well when the same people who led banks and investment firms into a crisis that required federal bailouts still made pots of money. And when far too many people are still out of work, excessive pay packages seem especially inappropriate.
Some new federal rules and regulations are bringing changes, at least in the information provided about executive pay. The Dodd-Frank Wall Street Reform and Consumer Protection Act will make companies report on their CEO-to-worker compensation disclosure ratio (There's some strong opposition to this "excessive regulation", and companies are claiming that the number is just too hard for them to compute.) Publicly-held companies also are required to have share holders vote on CEO pay packages, but it is a non-binding vote that management can ignore.
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One of the four broadly-named ethical norms for eco-justice is "sufficiency", which is a fancy word for "enough." Several years ago, in a Notes dealing with sufficiency, I wrote: "How much is enough? Enough is a baseline of survival for the billion people who don't have enough of anything, and for the species that are being crowded out of existence. And enough is an upper boundary on the wants of the affluent, to ensure that there are sustainable resources to meet the needs of all."
The absurd and obscene disparities in wealth make a mockery of the principle of sufficiency. The top corporate CEOs who had average earnings of $11.4 million last year are getting far, far more than "enough".
CEO pay has implications for the health of our nation's economy, and there are all sorts of related justice issues about labor and taxation. But there is a broader factor that should be important to churches, and to those who seek sustainability.
We, as a society, need to say that there is an upper end for "enough". The unending escalation of pay -- and the related concentration of wealth in the hands of a very few -- is dangerous and damaging. There simply is no legitimate purpose in such disproportionate income. There is no way an individual can spend it all, and we need to stop granting status and respect to those who soak up and hoard these assets.
Drucker's proposed formula of a 20-to-1 ratio gives us a helpful starting point in considering sufficiency. Twenty times is a reasonable standard for "enough". This Labor Day, and beyond, let's call for a more just and appropriate range of pay and wealth.
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