May 30, 2019

May 30, 2019

Don’t Just Gawk at These Ratios. Punish Them! Among the many fun features of last Sunday’s New York Times was the Business section’s annual survey of how much the CEOs of the 200 biggest companies made last year, along with how much their median employees made, and the consistently head-spinning ratios between those two numbers. Heading the list was old friend Elon Musk, whose take-home pay of nearly $2.3 billion came to 40,668 times what his median employee was able to pocket. 

By my count, only nine CEOs made less than 100 times what their median employees made. Twenty, by contrast, made more than 1,000 times their median employee, including four who made more than 2,000 times, three who made more than 3,000 times, and Musk, dwarfing them all at his more than 40,000 times. 

Of course, these ratios are almost all smaller than the actual ratio between CEOs and their median workers, a category that includes not just the employees whose pay is the basis for these calculations, but also the independent contractors—whether real or just deliberately misclassified employees—their companies employ, who invariably make less than employees and don’t qualify for any benefits.

Writing in the 1960s, the great management consultant Peter Drucker figured that the highest justifiable ratio between the pay of a CEO and that of his median worker might be 20-to-one. At the time, most such ratios were in the 10-to-one to 20-to-one range. That time, not coincidentally, was also the period of the lowest levels of economic inequality and the highest levels of economic upward mobility that this nation has ever experienced. 

Any number of proposals for reducing our now stratospheric levels of inequality have been kicking around for years. My own proposal—adjusting the tax rate on corporations to the CEO-median-employee pay ratio, so that corporations with a ratio under 100-to-one would have their rate reduced, and those with a ratio in excess of 100-to-one would have theirs raised progressively, so that it would be much higher at, say the 1,000-to-one level—was the inspiration for the new corporate tax rates that the Portland, Oregon, city council set a couple of years ago. It’s not as simple as a maximum wage law, or income tax rates that go to 70 percent on incomes over several million dollars (back when CEOs made just 15 times what their workers made, the top rate was around 90 percent), but it may be just a smidge more enactable.