Bruce Murphy
Murphy’s Law

CEOs Paid 1,000 Times More Than Average Workers

Study finds local companies Manpower and Kohl's near the top of obscene U.S. pay gap.

By - May 22nd, 2018 12:27 pm
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Manpower Headquarters. Photo by Jeramey Jannene.

Manpower Headquarters. Photo by Jeramey Jannene.

A new report on CEO pay reveals jaw-dropping figures on CEO compenstion, and among the 13 companies with the biggest gap between the top executive and average worker pay are two Milwaukee-based businesses, ManpowerGroup and Kohl’s. CEOs at those 13 companies earned at least 1,000 times more than their average worker. 

“Many CEOs and top executives didn’t want to release this data, and now we know why,” said Democratic Rep. Keith Ellison of Minnesota, whose staff compiled data provided by companies under a provision of the Dodd-Frank Act. The data is from the first 225 of the Fortune 500 companies that have submitted this information, and results show the biggest pay gap at the Mattel toy company, where the CEO earned $31.3 million, or 4,997 times more than the average worker’s pay of $6,271. The median employee at Mattel would have to work 4,997 years or about 111 careers to earn as much as the boss did in just one year, the report found. 

Ranking sixth was Manpower Group, whose CEO Jonas Prising earned nearly $12 million, or 2,483 times more than the average employee compensation of just $4,828. Ranking 12th was Kohl’s, whose CEO Kevin Mansell earned $11.3 million, or 1,264 times more than the average worker compensation of $8,876. The low average salaries at some companies may reflect the fact they have some employees in less developed countries. There was no response to Urban Milwaukee’s request for comment from Kohl’s and Manpower. 

By far the highest salary at these 225 companies was at the entertainment booking company LiveNation, whose CEO earned $70.6 million, which was 2,893 times more than the average employee salary of $24,406. 

Two other metro Milwaukee companies were on the list: Fiserv CEO Jeffery Yabuki made $10.4 million in compensation, or 151 times more than the $69,205 paid to the company’s average worker, and WEC Energy Group CEO Allen Leverett made $13.6 million, which was 113 times more than his average employee, who earned $120,223. 

Their compensation was actually below the average CEO-to-median-worker-pay ratio among all 225 companies, which was 339 to 1, the report found. “For historical context, in 1965, the average CEO made 20 times the average worker,” the report notes. 

“Beginning in the late 1970s, income inequality in the United States began to spiral upwards” while “incomes for most Americans have been stagnant for four decades,” the report notes. “This increase in income inequality was almost entirely driven by soaring compensation levels for the top 1% of income earners.”

“Top income earners increasingly earn their income at the expense of everyone else,” the report continues. “In the 1970s, the top 1% of families earned less than 10% of the total national income earned by all workers; today, their share is greater than 20%. Despite increases in worker productivity over the course of the last four decades, workers are simply not earning a larger share of the output they produce.”

This data is being required from U.S. publicly held corporations for “for the first time in history,” the report notes, mandated by Congress in the Dodd-Frank Act of 2010. “However, due to a sluggish rulemaking process at the Securities and Exchange Commission (SEC), the rule was put off for years.”

“In August 2015, after sustained pressure from a wide range of advocates, including state treasurers and other institutional investors, labor unions, and lawmakers across the country, the SEC voted to finalize the pay ratio disclosure rule in a 3-2 decision,” the report explains, with all three Democratic SEC Commissioners voting in support and both Republican SEC commissioners opposing this.

“The Trump administration, Republicans in Congress, and the private sector have all attempted to kill this rule over the past year. In February of 2017… the SEC re-opened public comment for the rule and encouraged companies to weigh in with complaints about difficulties in calculating the pay ratio. The agency instead was flooded with letters in support of the rule. By one count, they received over 14,000 letters in favor of the CEO pay rule and only 30 in opposition.”

Among those opposing the rule was the Business Roundtable, a CEO-led lobby group. “The Business Roundtable’s Chair is JPMorgan Chase CEO Jamie Dimon, who we now know made 364 times his median employee’s salary in 2017,” the report notes.

At all but six of the 225 companies examined, “it would take the median employee more than one full career to make what their CEO makes in a single year,” the report discloses. “At CVS Health, for example, the median worker would need to be on the job for 319 years, or more than seven full careers, to make their CEO’s annual salary.”

At the second lowest company on the list, salesforce.com, the CEO earned 30 times more than the average worker. Just one CEO on the list had a pay ratio more like the old days of the 1960s, when America had such a vibrant middle class: Warren Buffett, the CEO of Berkshire Hathaway earned just $100,000 last year, about twice as much as the salary of the company’s average employee. Somehow that hasn’t prevented Buffett from using his investing acumen to become the world’s third wealthiest person. 

The pay for American CEOs is also far out of line with that of their peers in other industrialized countries, the report notes. “According to a new Bloomberg analysis of twenty-two major countries… (the) average U.S. CEO makes more than four times the average pay of a CEO abroad.”

The rise in CEO pay has been driven by several causes, as I’ve written:  mutual backscratching by executives who sit on each other’s boards and reward each other with raises; other corporate board members who oversee pay that collect big fees from the the company’s leadership; paid compensation consultants hired by the company who also have an incentive to recommend raises; and system that offers stock incentives for a good performance and no punishment for failure, such that the highest paid CEOs are typically the worst performers.

The new report offers an additional reason: “Prior to the Reagan administration, top marginal tax rates were more than 70%, and… CEOs had no incentive to demand sky-high pay, since much of it would be taxed away anyway.” Since then the rate has steadily dropped to 39.6 percent, and the Trump tax plan drops that further, to 37 percent as of 2018. 

Are there any solutions to the wealth gap? In 2016, the city council in Portland, Oregon created a tax penalty for publicly traded companies with pay gaps higher than 100:1, which increases proportionately for pay gaps higher than 100:1, the report notes. “Several other city and state governments are looking at similar legislation…Other policymakers, including state legislators in Rhode Island, are considering an approach that would give companies with low CEO to worker pay ratios preferential treatment when bidding for government contracts.” 

But the best option would be increasing the top federal income tax rates, something Buffett has supported, calling for higher taxes on those earning more than $1 million. As he put it in a 2011 Op-ed:  “While most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks…My friends and I have been coddled long enough by a billionaire-friendly Congress.”

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Categories: Business, Murphy's Law

10 thoughts on “Murphy’s Law: CEOs Paid 1,000 Times More Than Average Workers”

  1. The Other Jason says:

    I’m no CEO apologist, but the rankings from some retailers, including Kohl’s, is a bit skewed when you omit the data on part-time workers, which wasn’t mentioned in this op-ed, but was mentioned elsewhere in news about the CEO pay report. I do agree that CEO pay is way out of line in general, but Kohl’s ranking is inflated due to the fact that their many part-time workers’ pay isn’t adjusted to full-time equivalent numbers. So a PT worker working 20 hours a week and earning $10,000 a year isn’t counted in the data as a PT worker, but as a full-time worker, which skews the data.

  2. Troll says:

    Giannis antetokounmpo salary s $24 million dollars a year. Pretzel vendor at new Bucks arena $15 an hour. Where is the outrage?

  3. Timothy J Haering says:

    Live by the buck, die by the buck. They can have their crazy wealth. Hard enough to fit through the eye of a needle as it is, don;t need all that baggage. Will the real JOhn Galt please stand up?

  4. Dennis says:

    The first and only time I ever agreed with Troll. Outrageous we have to use tax dollars to build a playhouse for these overpaid athletes.

  5. Thomas says:

    A great irony in this story is that MANPOWER was instrumental in facilitating the separation between employer and employee by championing temporary help via agencies that allowed employers to hire people to work for them without calling them genuine employees. It doesn’t surprise me that the head of such an outfit thinks that he or she is worth 12 million dollars a year. “If workers don’t like it, let them eat expired donuts.”

  6. JMac says:

    Troll,
    As usual, you don’t seem to get the point. I.e.; Giannis gets what he gets because he competes for his salary. The fix is in for top execs, at an ever increasing pace, because boards and recruiters dictate compensation. Executive comp is the elephant in the room that robs so many of earning a decadent wage.

  7. 2fs says:

    once again…”earns” is entirely the wrong word here. No one can “earn” that much more than anyone else.

  8. cer5sure says:

    How many many pensions is Barrett getting? What are they worth? And for what, exactly? Making MKE more dangerous?

  9. Troll says:

    J Mac, I disagree with you. Jeff Bezos a liberal, is the richest man in the world. Yet, he creates value for society. He recognized that most retail customers do not want to go into retail stores. Bill Gates another Liberal, recognized that software is of more value than computer hard ware. In both cases, they both surround Seattle and have made Seattle prosperous. Executives are paid to make share holders( public pensions) happy.

  10. Thomas says:

    Troll’s citing 2 rich liberals in the above post looks to me like a case of intentionally missing the point. Both Bezos and Gates recognize the inequity in their great fortunes. Both give much of their wealth to charities. Both helped make Seattle a wealthy city, a city in which public school teachers in large #s cannot afford to live.

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