GUEST EDITORIAL: CEOs and regular Joes: What the salary gap doesn’t mean

How would you like to swap paychecks with Boeing CEO Dennis Muilenburg?

Of course you would, even without knowing his weekly take-home totals, because you can be certain Muilenburg’s salary — like Boeing planes — is sky-high. Whether he makes 200 times more than you do, or 2,000 times, doesn’t much matter.

What is important, if you want to consider the issue of pay disparity between CEOs and regular Joes, is whether bosses of publicly traded companies earn their stratospheric compensation. Are they worth the money?

Muilenburg, who succeeded James McNerney as CEO of the $90 billion company July 1, had a total pay and benefits package last year of $12 million as a Boeing vice chairman. Expect a big bump for Muilenburg, since McNerney’s total compensation was nearly $29 million in 2014, his last year before retirement.

Want to know more? You can pore over the details in Boeing’s 2015 annual proxy statement. Everything’s in there, including Muilenburg’s $1 million salary plus all the incentive pay he collected. Then weigh the compensation numbers against Boeing’s earnings performance, share price and other factors, including executive pay at comparable companies, and decide for yourself if McNerney and Muilenburg delivered bang for the buck.

Starting soon, you’ll have another way to judge CEO pay, but this new metric doesn’t seem designed to illuminate as much as infuriate: Companies will report a figure showing how much more the boss makes than the typical employee.

Specifically, the Securities and Exchange Commission said this month that most publicly traded companies will be required to calculate the ratio of the CEO’s total annual compensation to the median compensation of all employees.

Companies won’t begin including the information for several years, but we already know lots of bosses make 200 or 300 times more than worker bees. A USA Today estimate based on survey information showed the average CEO of a Standard & Poor’s 500 company earned 216 times more than the median employee. When the Chicago Tribune business section ran some numbers, it found McNerney, who was the highest paid CEO in Chicago last year, had a pay package 611 times the average U.S. worker’s 2014 salary, which was $47,230.

Now do you feel like a better informed investor or employee? Or just grumpy, because nobody could possibly work 216 times harder than you do?

The resentment factor is key to this metric. The CEO pay ratio requirement was included in the 2010 Dodd-Frank financial reform law, which was designed to protect the country against another financial crisis. The sprawling legislation increased regulatory oversight, and took some swipes at big business.

In urging the SEC to finish its rule-making, the AFL-CIO wrote: “Disclosing this pay ratio will shame companies into lowering CEO pay.” That argument fits neatly in the broader context of the political battle over income inequality, but it doesn’t do anything to protect and strengthen the economy, or help investors make smarter decisions.

Companies will spend time and money calculating a number that adds almost no insight. The ratio doesn’t even reflect a direct comparison between American workers and their bosses. The SEC determined companies should include their global workforce, which could involve collecting salary information from Hong Kong to Hyderabad.

There will be one unintended, emotionally charged consequence of publishing the CEO-regular Joe pay ratio. You can bet employees will look closely at the figure for median salary — and feel hurt if they make less, or jealous if they notice competitors earning more.

The people least likely to be moved are investors. Shareholders regularly express their views on executive compensation via nonbinding say-on-pay votes at annual meetings. And they nearly always approve the boss’ salary. Boeing shareholders this year approved CEO compensation by a more than 10-1 ratio.

One reason for that is companies over the years have done a much better job of linking executive pay to performance, and explaining the formulas in the proxy statements. (Ah, if only government would act as responsibly, but that’s for another editorial.)

A second reason investors aren’t in a lather over multimillion-dollar salaries is that there’s nothing new or shocking about superstar pay, whether it’s business executives, movie stars or athletes.

It’s understood: In a free market, talent gets rewarded. Very few people have the skill to play basketball like LeBron James. And few people have the skill to run a complex, global multibillion-dollar corporation. So they get the mega paycheck, even though we’d all like to have it.

This editorial orginally was published in the Aug. 17, edition of the Chicago Tribune.


Posted by Tribune News Services

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