600-to-1

Everyone has to work for a living. The amount of compensation for a life’s work is determined by several factors: worker skill, education, value added to the product, and the overall demand for the product. All of these real and tangible factors play important parts in determining individual compensation—used to calculate rank-and-file wages.

When executive compensation is considered, however, the rules change. The people at the top of a corporation closely link ego and income. They, chief executive officers (CEO’s), “keep score” of their performance by measuring the wealth they amass. This thinking leads them to discount the needs of the workforce (now referred to by the impersonal term “human resources”) while they concentrate on gratifying their egos at everyone’s expense.

If this sounds like an unfair indictment, let’s examine the facts. In most growing economies the differential in compensation between the CEO and the lowest paid worker in a corporation is around 50-to-1. In the average corporation there are about 50 people in a department; therefore the CEO, by himself, makes the aggregate wage of a whole department under his jurisdiction.

Say, for example, a company assembles widgets and pays its workers $10 per hour, or $20,800 per year. At 50-to-1, the CEO gets $500 per hour, or over $1,000,000 per year.

A recent survey of FORTUNE 500 companies showed that many American corporations compensate their CEO’s at ratios of up to 600-to-1! This is the aggregate compensation of an entire corporate division going to one individual. To put it in perspective, at this rate of $6,000 per hour, this CEO’s morning bagel costs roughly more than twice the lowest paid worker’s weekly salary ($1,000 in time and $1 for the bagel)!

Is there any justification for a 600-to-1 salary differential? Is anyone truly worth earning this level of compensation? What about the people who actually do the work—aren’t they being cheated? The strain on the workforce is becoming evident, isn’t it? More importantly, how long can the worker hold the CEO up?