What accounts for the salary difference between being an employee or a CEO?
A lot of people would say it’s attributed to the fact that a CEO worked harder to get where he or she is.
Others, would say perhaps, but it’s also because they had connections (family, friends, school), money, and/or opportunities otherwise not available to those who are on the lower rungs of society.
So what really accounts for that salary difference between an employee and a CEO?
Aside from the argument that success is what you make of it, not solely determined by how much you make in salary, here are a few of my thoughts:
1. WE HAVE TO CONSIDER THE COUNTRY
In the U.S., the big hoo-ha is all about how American CEOs make about 343 times more than their average worker. (Source) You’re screaming bloody murder at this point because how can that really be possible, especially if you look at a country like Japan?
In Japan, CEOs earn 1/6th of what American CEOs earn, and only 16X the pay of their average employee.
“It shows, too.
Japan’s corporate bigwigs might travel around in chauffeured cars and play golf on the company’s dime, but they don’t trot around in designer suits, shuttle between cities in private jets, or order up multimillion-dollar houses.
And the moment the company’s profits plunge, they often take one for the team.”
(Source and Source)
On this note, I’d also like to point out that it looks even worse than it is, because American minimum wage is pathetic.
In Canada it is on average $10 an hour, but in the U.S. it’s $7.25 as an average (source).
I am not entirely convinced that it should be raised to $20+ as the source is suggesting, but it should be at least $10 an hour, considering that health insurance is rarely offered at those low-level jobs.
In Canada, even if minimum wage is only $10 an hour, we don’t have to worry about avoiding the doctor because it’ll cost $100 just for a 10-minute consultation to tell you that you have the flu and aren’t dying, or $700 just to get a basic check up every year or so.
I definitely do not believe that minimum wage in Canada for instance, should be $20/hour (or double what it is today), because that just makes the problem worse everywhere else.
All the costs of basic goods and services will obviously rise by 100%, which means everything will become twice as expensive… and it just puts people back into the same positions that they were before, except now instead of $0.50 for a few potatoes, it’s $1.
What’s the answer to this?
I don’t have one, but it isn’t giving more money without considering why people whine about not making it on a $20,000 a year salary in a small town yet they all flash their $700 iPhones with a $70/month data and voice plan.
If you work at a minimum wage job, but the cost of living in let’s say Toronto or Vancouver is too rich for your income, then you should move to a lower cost of living city, earn the same amount, and be able to make your dollar go farther.
OR, like New Yorkers, accept that you WANT to live in such a cosmopolitan city no matter what it takes, and you are willing to take on another part-time job at night or on the weekends to compensate for that higher cost of living.
Either way, it’s your choice.
2. WE HAVE TO CONSIDER THE CULTURE
In Japan, as I understand it, they are less likely to feel entitled to anything. They see themselves as bees, working for the greater good of the hive. No one bee is more special than the other, and in Japan they have a saying about this: “The nail that sticks up, gets hammered down.”
This is both good and bad for obvious reasons — they don’t see themselves as special individual snowflakes, but they also don’t allow for anything but conformity to their strict social rules, which is one of the reasons why they say the Japanese are so repressed that they do the very oddest things possible (e.g. Japanese adult entertainment, which I am told is some of the freakiest in the world.)
(..although Japanese people for me, also make the most delicious food in the world.)
In contrast, Americans are (perhaps stereotypically) more likely to toot their own horn, talk up how much they’ve accomplished and generally feel very proud of what they have achieved in their lifetime.. and rightly so, if you consider the history of the American people.
They were all people who left Europe’s stifling cultures, and came to create a new melting pot culture based on hard work, persistence and general “get ‘er done no matter what” as an attitude. Some of these folks were so poor, they figured they had nothing to lose.
Others, just didn’t want to be part of the elitist culture of Europe where one was not very likely to make it to the top if they were born into poverty and didn’t have connections.
Again, this is both good and bad for obvious reasons – what I like the most about American culture is that anyone, anywhere, no matter your background or pedigree, can make it to the top. It is not based on who you are, what your last name is, or where you are from — it’s all you.
The bad, is clearly that some people feel like they’re more special than others, and that contributes to resentment on the part of others but also the inflating of an ego to the proportions of a blowfish.
3. WE HAVE TO CONSIDER ABILITIES AND INTELLIGENCE
This one is a touchy area because no one likes to think that they don’t have the intelligence to “make it”, and if I have learned anything working in corporations, some people who are at the top, don’t deserve to be there based on intelligence alone, and others at the bottom, should be at the top instead.
All that said, we ARE human beings with different talents and abilities and I am not of the belief that “everyone can do any job anywhere“.
That is just impossible and unrealistic.Â
With myself as an example, I have absolutely no brain or interest for science.
I just don’t get it, and more telling — I don’t care to understand it because I have no interest in it.
If all the jobs that were available with high pay were in things like chemistry or biology, I’d be utterly screwed and would probably be a McDonald’s flunky.
Our society tends to rewards the abilities that are more elusive and perhaps take more work to achieve such as in technical professions dealing with math, science and logic, rather than the arts for instance…. which is shown in the pay received in different jobs.
That is not to say that someone who is geared towards the arts is screwed for life in our society, but they have to be more creative and they have to work harder to achieve the same level of success as someone who is more naturally inclined towards math for instance.
Perhaps that artsy brain can be put to good use dreaming up of a brilliant idea, and then they are able to gather a team of more science-y types around them to execute it.
Or maybe they use their artsy brain towards applying it in a profession like becoming an architect or even in programming where they have to come up with creative ways to solve a problem.
Whatever it is, there is a basic understanding that not everyone is conventionally smart, but even if you aren’t smart, it also doesn’t mean you’re too stupid to achieve anything.
It just takes a little more finagling.
4. WE HAVE TO ACKNOWLEDGE THAT SOME PEOPLE START WITH GREAT ADVANTAGES AND OTHERS WITH NOTHING AT ALL
If you have money.. or rather if you were born into your parents’ money, you have a lot more opportunities than most.
You were probably encouraged to go to college, not required to work to help pay the family bills to put food on the table, allowed to concentrate more on schoolwork, given private lessons in areas you were struggling in, and/or part of a circle of society that had role models to show you what you could achieve (engineers, doctors, surgeons, executives, etc), so you never doubted that you’d end up where you were.
Others who don’t start at the same line as you did, may have started way in the back — quitting school at 16 to work 2 jobs to help your single mother feed your brothers and sisters, or having had no support your entire life in anything you wanted to achieve, let alone to be encouraged in the poor neighbourhood you were in, to think about going to college.
I am of the belief that the situation really does play a big role in where you end up, and it’s partly the luck of the birth lottery.
I’m always in awe (but not condoning) of those mafia bosses and crime lords that have such levels of instinctive intelligence to be able to gather those in their area around them as natural, born leaders, to execute their orders and run a tight pirate ship, so to speak.
If those criminals had been born into better families, maybe they would have ended up as CEOs on the right side of the law, rather than the wrong.
In contrast, I see rich kids who had everything given to them, basically waste their lives away, doing drugs and not bothering to make the most of what they were given.
So what does all of the above add up to in the difference between CEO and average employee salaries?
For one thing, it means that a realistic society is not an utopian, totally egalitarian one.
Some people make it to be a CEO for various reasons, and it isn’t JUST about hard work and persistence. They were also given the opportunity, born in the right place at the right time, to the right family, and more importantly into the right society or culture that gave them a leg up to reach that level of success.
Others, don’t ever make it, and it isn’t just because they’re lazy bums.
Don’t get me wrong, some of them are lazy bums who want to sit around all day and whine.
…but maybe they weren’t given the chance to finish high school, or the right home environment to not worry about feeding themselves and avoiding being recruited (unwillingly) into a gang or else risk being shot while walking home one day from school.
Maybe they had siblings they had to take care of, a rough, abusive home life or were just never encouraged to pursue anything because their immediate, human needs were too pressing to worry about investing so much time and money into achieving a degree to be able to make something of themselves.
IT IS ALL IN THE VALUE WE PLACE ON CEOS AND WORKERS BASED ON THE DIFFERENT TASKS THEY HAVE TO ACCOMPLISH
The second, is that it is simply easier to replace someone at the employee level than it is to replace a CEO or an executive who has been key to creating value in a company.
There is simply more supply available at that level.
A McDonald’s employee who makes minimum wage can be found in any high school or retired pool of candidates.
A CEO who has experience, has been trained in the corporate culture (perhaps working as a burger flipper him or herself when they were younger), and understands how to not only envision the future of the company and make it grow to achieve that vision by herding along the thousands of employees worldwide, is not someone you can pick out of any pool.
It is also the investors and the board of directors who approve these salary increases.
So if we don’t say anything, it continues being the way it is — CEOs get higher and higher salaries, while employee salaries continue to stagnate and it creates a wider and wider gap between the have and the have-nots.
Lastly, CEOs also have to take the blame for everything, and manage all sides of the puzzle — employees, investors worldwide, board of directors, internal company executives, etc.
Employees don’t have to take the blame for anything, and no one will remember if Jack Smith burned the fries and got fired. They’ll just hire another guy to take his place.
If the company tanks, they’re fired, ousted, pink-slipped (although maybe with a generous golden parachute). They may not be able to ever find a job again (not that it matters if they managed their money wisely), but their reputation is very public and perhaps tainted for life.
But the real difference perhaps, is the way we value CEOs and employees in any given society and country.
The fact that American CEOs make 343X more than their average worker, doesn’t necessarily mean that they work 343X faster, smarter or are 343X better than they are… it just means that to us, they’re valued at 343X more than the average employee.
If you don’t believe in this, then you need to either:
- lower their salaries to a more equitable pay
- raise the salaries of the minimum wage workers
- or vote with your money and refuse to continue to perpetuate the success of a company built on the backs of others either by not investing with them, or not buying their products and services
WHAT DO YOU THINK?
14 Comments
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save. spend. splurge.
Your attitude is the way I aim to feel as well. I feel very fortunate and privileged as is and I don’t want to be super rich or famous. Just comfortable.
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StackingCash
The compensation of CEO’s is outrageous and yet we all still plow all our money into the 401k/stock market ponzi scheme to fund their salaries. To think that they actually make money from the business they are running is a joke. It’s all about who can get the most credit, debt, and stock market investors money in the end. There is too much corruption at the top to do anything about the widening gap of rich and poor short of a revolution, a violent one at that.
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save. spend. splurge.
The best country to display the least amount of corruption is Japan. I should note that our culture promotes this compensation as well… Consumerist 🙂
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middle class
I have way too much to say about this in one comment, or even one post. Overall I think you make a good, fair argument but I wanted to add some food for thought.
It’s normal to compare CEO salary to minimum wage. However, I also want to bring attention to the problem of income stagnation for professionals within the company hierarchy, from middle management to average office workers who make more than minimum wage. At this level, wages are stagnant (at least in the U.S.) making it hard to sustain a middle class lifestyle. If I had simply gotten at least a 3-5% increases over the past few years, my income would be adequate to live in a high cost of living area and in line with my skills, experience and increased workload. Yes, I can jump ship for more money but I feel that when the economy is doing well, the top dogs reward themselves and when things are tougher, they fire and institute salary freezes which ultimately result in a larger pay gap and income stagnation.
In addition to intelligence and ability, we have to consider drive, personal values and introversion/extroversion — all of which affect a person’s ability or desire to climb the corporate ladder.
I agree it’s easier to replace a lower-level employee than a CEO. However, there are many examples of incompetent CEOS and upper management getting huge pay and benefits even if they’re bringing down the company. They should take credit for success but no one (in the U.S. at least) takes any blame for ruining companies. I can’t remember the exact industry but I remember reading about huge salary differences between 2 CEOS of 2 similar companies (ex: Lowes & Home Depot, or Verizon and Sprint). Ironically the CEO of the more successful company got paid less than the one who was driving his company to the ground. CEO compensation can often be trace to better negotiating skills, company culture or even timing (economy-wise). It doesn’t reflect the skill or success of the individual at top. I think CEO compensation should be tied in with the company’s success or failures in a more concrete way.
I agree in theory that if investors are not happy with a company’s compensation struture, they can vote with their money. However, many if not most middle-income investors have mutual funds in order to diversify. That makes it hard / impossible to simply pull out their money from a single company. CEO compensation is only one part of the equation. Even if the compensation is out of whack, the company may be a good corporate citizen or make very worthwhile products, etc..
Finally, Kathy wrote: “I find it interesting that some of the very people who vilify CEOs because of their salaries have no problem attending a movie where the actor or actress made 10-20 million for nine months of work, or a sporting event where the star athletes earn hundreds of millions for a 3 year contract. I’d much rather the CEO of some company whose product I use earn that rather than the actor or athlete who contributes nothing to impact my life.” I just want to mention that this is very subjective. I personally think social workers, teachers, and artists contribute a great deal to society and have impacted my life. Not every values a company with good products over great actors or athletics.
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save. spend. splurge.
Wow. EXCELLENT points. A lot of great food for thought particularly the point about top dogs rewarding themselves and not passing down the profits.
I also agree with your point about teachers and other influencers. Products aren’t my be-all and end-all for impacting my life.
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Kathy
I find it interesting that some of the very people who vilify CEOs because of their salaries have no problem attending a movie where the actor or actress made 10-20 million for nine months of work, or a sporting event where the star athletes earn hundreds of millions for a 3 year contract. I’d much rather the CEO of some company whose product I use earn that rather than the actor or athlete who contributes nothing to impact my life. The CEO has to make decisions that could determine the success or failure of his company but all an actor does is repeat lines written by other people.
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save. spend. splurge.
I partly agree, and I only disagree because I don’t want to completely diminish or negate the talent and work an actor has/does to ‘repeat lines’ as you say, which the best example of, is actors who are just terrible on-screen. It’s not something anyone can do…
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Jill Pontiere
Well said and right on target! You said it better than the Wall Street Journal!
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Revanche
There are a whole load of other complexities to consider as well. Racism and sexism are RIFE in America. No matter how much we want to believe that we’re a meritocracy, we’re really not. You can experience some small amount of mobility in certain circumstances but social privilege plays an enormous role in how people make it or don’t.
CEO culture is part of that perceived meritocracy. I can’t think of any other job where it’s as profitable to get fired and possible to get rehired elsewhere at just about equally high wages as the executive in the Csuite. The ridiculous separation package is the rule, not the exception and it’s something I absolutely do not understand. How did it make sense to build in not even a financial cushion but a financial TRAMPOLINE for execs who get fired for poor performance? That’s pretty much the opposite of incentive, isn’t it?Certainly there’s a greater level of responsibility at that level but I think people also attribute more capability to those who hold the title than they have or deserve and so it’s easier to dismiss the disparity in pay. The assumption is that they much be competent if they reached that status and that’s just not true, IMO. Some are but I’m not convinced that even most are.
Then again, I tend to think it’s in line with our other screwed up priorities. We pay CEOs like we pay athletes and coaches for sports. My god. Sure sports has a place in our culture but the veneration it’s attained is quite extraordinary and I find it hard to fathom.-
Taylor Lee @ Engineer Cents
@Revanche: YES, THIS X 1000. We as a country give execs a lot more credit for their hard work and competence than is really due and diminish the work of poorer Americans by using their earning potential as some sort of broad-stroke “indicator” for how hard they work or how much they are worth as a human being.
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save. spend. splurge.
Hey I hear you. For me, athletes work hard yes.. but to justify what they earn in comparison to what they do?
As a society we pay those whom we value and it seems like we value icons and rockstars more than the average joe or jane
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SarahN
For me, the top dog earns the money to deal with the level of risks he is responsible for taking on for his business. Sure ‘he’s’ not alone, but he’s the figurehead of so many decisions…
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Anonymous
Yes a lot of CEOs have a lot of pressure to “make it work” and I don’t envy them nor their salaries. I don’t envy their hours, their risk, the pressure from the board of directors or the shareholders, etc. I also don’t envy surgeons making $700,000 or air traffic controllers making $100,000.
A lot of CEOs get fired and the news of their firings/pressure to resign, makes it on the Wall Street Journal and New York Times. While I think it would be nice to have a $5 million home, a yacht, and to shop at Chanel, I just don’t have enough desire to go and become a CEO or executive. So I’m okay with the CEO’s having those luxuries. In a way I don’t desire those luxuries enough to work for them.
If the average North American was placed in a CEO role without training, prior experience, etc. They would literally quit under the stress. I think most would quit. I *know* I would quit, I’m not the executive type. I also don’t want to say that x amount of money is too much to pay someone. People use that same mentality to underpay non-CEO types.
Real life example: I worked in a call center before attending university, one time I tried interviewing at another company but I was making $10.50 at current job and at this other place the company offered me a CSR call center job for $8. That was just too low. At the very least I wanted to make $10.00.
After turning it down, I ended up talking to friends who said they had previously interviewed in the past, someone had a dad who had worked for this company in the past, and they all said the company offers the lowest pay around in our city. Some of my friends who had taken jobs there eventually ended up quitting. And the friend’s dad who had worked there also moved on from there.
Besides I think rich is relative.
I feel rich for having caring parents, my health, loved ones, living in the first world, having a paid-for economic car, for having had traveled in the past, being able to go to university without taking out loans (thanks to the Pell Grant, a crappy call center job that people kept quitting so I racked up a lot of hours & money on OT, and my parents kicked in the rest, I also went to community college first and now I’m at a state uni)…
I also feel rich for being able to have Netflix, Amazon Prime, Hulu Plus, a library card, a Kindle tablet, a membership to Audible, subscribing to 13 magazines, being able to go out to eat on the weekend, going to the grocery store and being able to buy fruits, veggies, meat and dairy, for being able to go to the salon 1-2 times a month, for having the internet. I have a flat screen TV and TV stand.
I even have a gym membership for $20/month & a pay as you go smartphone. I play video games on my PC too. I even feel more fortunate because I knew how much my folks made, they taught me to balance a checkbook, how to write one, my mom taught me how to shop for what I want during sales, my dad taught me to “save 10% of each paycheck or you’ll never get ahead” but I think while that worked for him and he got ahead that way, I try to save more than that.
I had a couple of teachers in public high school lecture on the value of saving early for your 401(k), we had some ladies from a bank come and talk to us about money basics. And yes I did have parents who told me I was very special, lol, I had typical baby boomer parents who were kind of helicopterish sometimes.
One time in 3rd or 4th grade the week before the Christmas holiday, we were going to make gingerbread houses in class, and we were supposed to bring supplies, so I told my parents, well they did that but then they went ahead and made it for me, so there I was being the only kid who had a full gingerbread house. It was really weird. I wish I were kidding, after that I told my parents to let me do my own projects.
But on the good side of that, my parents did pay for tutoring for math because I was struggling with it for a couple of years.
Most of us, even many of the working poor (I’m not talking about homeless poor, or disabled poor) have AC/Heating, fridge with freezer, dishwasher, oven, washer and dryer, microwave, basic clothes, basic shoes, cars even if its an econo car, etc. I even see poor people having smartphones, TVs, TV stands, basic furniture (bed, sofa, recliners, laptops with internet connections, a desk, etc.)
Rich people just have the nicer top of the line version of these these things, while the poor have the budget version and middle class have mid-range versions.
When I worked at a call center before quitting and going to uni full time. Many of the women and young ladies in their 20’s there also had these things (mostly women work at call centers).
After uni is done, I’m going for a career in IT, and then I want to get a house around $150-180k. A 300,000 house would be nice, so would a mansion, but I wouldn’t feel like I was deprived if I didn’t get those things.
My attitude is “so what if I don’t have a yacht, a BMW, a mansion, a fancy job title, or Chanel clothes, to me that is just the icing on a very big cake.”
I feel like I’ve already won at life and because I feel like I’ve already won, I have no desire to be “king of the hill”…I don’t even want to be famous. I have no idea why so many people today are obsessed with fame.
One time I was watching E! when I lived with my parents and Jen and Brad back when they were married went shopping together and couldn’t get out because of fans so they had to call the cops to help them leave. Fame seems so traumatizing.
I don’t care about marrying up either. I feel like I live a very pampered life already.