The number 400,000 has taken on a new significance. It’s a big number, and when you add a dollar sign in front of it, it looms even larger.
As it turns out, only about the top one percent of all individual or joint tax filers report adjusted income of $400,000—the actual number to make the top one percent of income earners is $388,905, but $400 K is close enough.
What I find so fascinating about the number 400,000 is that it is also what you get if you take four percent of the median annual salary of CEOs of the companies on the S&P list of the 500 most frequently traded large publicly owned American corporations. What that means is that if you put the salaries and bonuses of the heads of a very representative sample of the largest companies in American in a list from top to bottom, the halfway point will be $10.5 million in income in 2013. By the way, the 0.5 in this number means $500,000!
Keep in mind that some make much more, for example, Nabors Industries’ Anthony Petrello, who grabbed $68.3 million in 2013.
In other words, these five hundred (mostly) men and women make so much money that four percent of their mean salary is more than what more than 99% of the rest of us make. BTW, my numbers for CEO salaries come from a recent survey by Associated Press/Equilar of CEOs of the companies in the Standard & Poor 500.
And what do these CEOs do to earn all that money (which doesn’t include expense accounts and other perquisites of their exalted offices)?
Let’s start with what they don’t do. They all have one or more assistants that do their scheduling and keep their lives in order. There may be a president working under them and there will certainly be executive vice presidents and senior vice presidents for all of the various departments. These companies have an average of 44,000 employees who do the actual work of creating and selling the products and services. An S&P 500 CEO on average makes 257 times what the average employee makes, a tremendous increase from even five years ago when these corporate titans made a mere 181 times what their average employees made.
We know CEOs make major corporate decisions, but they have the help of the board of directors. We know that they are the face of the company, but when they speak in public, they have gotten their facts and figures from their company’s financial people and engineers and they have gotten their words from their PR folk. CEO’s do have the grave responsibility of meeting with elected officials, other corporate leaders, investment bankers and other powerful and/or rich people.
Sarcasm aside, there is no way to justify these salaries, which are significantly higher both in absolute terms and as a percentage of the average worker’s wages in the rest of the developed world. CEOs in Europe and Japan make less money and pay more in taxes. While CEOs are very talented, they aren’t so talented as to be unique—a Pascal, Einstein or Hawking is as rare among CEOS as they are among scientists, if not rarer. There are thousands of other people just about as talented who would be happy to take their jobs for a third or a quarter of the money. Or less. The proof that scarcity of talent is not the cause of the outsized salaries is that the European and Japanese business leaders make so much less on average than American CEOs when compared to their workers.
As a society, we can’t really control how a corporation decides to spend its money, as long as it does so legally. But we can raise taxes on these outsized salaries. And it makes sense to do so, not only as a matter of fairness, but to return the level of government service to what it used to be in the days when governments fixed potholes, funded many more large science projects and provided high-quality public colleges at a low cost. We can also raise the minimum wages, which would force these modern oligarchs to pay all of their employees more.