Friday, June 23, 2006

A garbage statistic

Xoff cites an Economic Policy Institute study that purports to show that the "average" CEO makes almost 11 million dolllars while the average worker makes a little over $40,000.

This is - and there is no other way to put it - flat out false. The "average" CEO does not make 11 million dollars. That figure is the average of compensation paid to some very not average CEOS, i.e, those that head 350 huge corporations with median annual revenue of 7.6 billion. If you rise to the top of the heap and run an enterprise that large, you make a lot of money. Maybe too much money. Just like it if you make it to the NBA (something which, statistically, you have a better chance of doing), you'll make a lot of money.

The average guy or girl running the average business does not make that much. Heck, the average business doesn't even make that much.

This doesn't mean that there is not income inequality. Inequality is inevitable in an economy that rewards talent and initiative. Whether the degree of income inequality that we have is a good or bad thing is something that can be debated, The problem with these debates is that the left forgets that how the pie is divided is realated to how large it becomes. They simply assume the pie.

I too wonder about how much shareholders choose to pay certain CEOs. In recent years, as the study that the EPI relies on makes clear, 80% of CEO compensation has come to ne "at risk", i.e., based on results. If someone comes in and manages a business in a way that it makes a billion more than it did last year, how much should that person make? I don't know, but I suspect that the people in the best position to judge that are the people whose money it is, i.e., the shareholders.

2 comments:

elliot said...

I will agree that most CEO's clearly don't make anywhere near that kind of money.

(Hell, that's almost lawyer bucks.) ;)

But what does bother me about CEO pay is the same thing that bothers me about the benefits given to public unions...the people making the decisions about the size of the compensation are spending OTHER PEOPLE'S MONEY and thus it is much too easy to give people way more money/benefits than is reasonable.

Dad29 said...

Apparently the CEO of GM makes as much as the top 26 executives of Toyota COMBINED.

There's reason for concern about some of this stuff...