As the New Year gets underway, the highest-paid CEOs of many large corporations have already paid themselves more than the average worker will earn in the entire year! By the end of the first week of January, the highest-paid CEOs had already made as much as their average workers will earn over 8 years.
An analysis by Equilar, a consulting firm specializing in executive pay, found that on average, the 200 highest-paid CEOs make approximately $22.6 million a year, or almost $10,800 an hour, a 9.1% increase from the previous year. Meanwhile, the Census Bureau reports the average household earns approximately $53,000 a year.
Over the past fifty years, the pay gap between many highly-paid CEOs and their employees has increased dramatically. In 1965, when they also liked to be rich, CEOs made approximately twenty times as much as their average employee, meaning they would earn their workers’ average pay by the third week of January, and since the 1980s, the average difference and greed have increased. Highly-paid CEOs now make 303 times as much as their employees in a year, according to a study by the Economic Policy Institute.
Equilar notes that Discovery Communications CEO David Zaslav makes $156.1 million a year ($74,796.36 an hour), or approximately 1,951 times as much as his average employee. Doug McMillan, the CEO of Wal-Mart takes in $25.6 million ($12,266.41 an hour), 1,133 times as much as the average experienced store associate, who earns roughly $22,000. Other highly-paid CEOs include Larry Merlo, the CEO of CVS Caremark, who makes 422 times as much as CVS employee, meaning that he earns an average worker’s yearly pay by 1 PM on his first work day of the new year; and Goodyear CEO Richard Kramer, who pulls in as much as an average Goodyear employee’s yearly pay by 3:00 PM on January 1st.
Shareholders, the owners of those companies, do not have binding power to determine the pay of their hired help–the company bosses. The wined-and-dined selected boards of directors regularly rubber stamp massive CEO pay raises.
An additional consequence of CEOs pushing up their own wages is that the company’s accounting, stock options and stock buybacks are often shaped to further directly enrich the corporate executives. With such a vast disparity, the impact on employee morale is not good. All of these consequences for big companies are the reason Warren Buffett takes a critical view of sky-high corporate compensation packages.
As the gap between the wealthy and the working-class continues to grow, the federal minimum wage remains stagnant at $7.25 an hour, or a little more than $15,000 a year, far below the $24,000 poverty line for a family of four.
Do you find this state of affairs upsetting?
Economists see raising the minimum wage as an essential tool to fight income inequality, with an increase benefiting at least 35 million Americans, according to a 2015 study by the Economic Policy Institute.
Unlike the soaring pay awarded to highly compensated CEOs, the minimum wage has not even kept up with inflation. Department of Labor data shows that, had minimum wage increases kept up with inflation since 1968, the minimum wage would be nearly $11 today. Instead, it has lost one-third of its purchasing power.
Raising the federal minimum wage would also reduce spending on numerous social welfare programs. A 2013 study by the Center for American Progress found that by raising the minimum wage to $10.10 an hour, the cost of enrollments in food stamp programs would decrease by $4.6 billion a year, which is why such prominent conservatives like Phyllis Schlafly and Ron Unz support a long-overdue raise.
On top of that, a minimum wage increase would also benefit the country’s gross domestic product. A 2013 study by the Chicago Federal Reserve showed that increasing the federal minimum wage to $9.00 an hour would increase the GDP by $22 billion annually.
In fact, raising the minimum wage can allow companies to remain profitable. A study by the United Kingdom’s Chartered Institute for Personnel Development found that when companies raised wages for their employees, the companies became more efficient, and workplace productivity increased.
Costco CEO Craig Jelenik explains that “An important reason for the success of Costco’s business model is the attraction and retention of great employees. Instead of minimizing wages, we know it’s a lot more profitable in the long term to minimize employee turnover and maximize employee productivity, commitment and loyalty.” Raising wages means that employee turnover is reduced, meaning that companies do not have to spend as much on recruitment and training. And because of this, Costco has an $11.50 an hour starting salary and benefits.
Jelenik is not the only CEO who supports raising the minimum wage. Other corporations that have started to pay a more livable wage include Aetna, The Gap and Ikea.
With the New Year, seventeen states saw an increase in the minimum wage, with Massachusetts being the first state in the country with a minimum wage of $10.00 an hour. In 2015, the city of Los Angeles set forces in motion to increase their minimum wage from $9 to $15 by 2020, and San Francisco plans to go from $12.25 an hour to $15 an hour by 2018. Currently, twenty-nine states, the District of Columbia and thirty-five cities have minimum wages set higher than the $7.25 federal minimum.
In the 2016 race for president, almost all of the Republican candidates are opposed to raising the minimum wage. The only Republicans who support a small wage hike are former senator Rick Santorum and Ohio Governor John Kasich.
On the Democratic side, all of the candidates endorse a higher minimum wage, with Hillary Clinton supporting an increase to $12 an hour, with no set time-frame, while both Bernie Sanders and Martin O’Malley support a $15 an hour minimum wage by the end of the decade.
As the 2016 gets started, it is important that CEOs concern themselves more with how they can stop denying their lowest-paid employees a fairer minimum wage than with how much more compensation they are going to demand for themselves over the next 351 days.