Nope, The Observer Still Doesn’t Understand CEO Pay And Ratios

We have the annual by now rant about how much it is that chief executives make. As compared, often enough to what the average worker makes. The problem with these complaints is, as is so often true, that nothing is ever put into perspective. The actual measurement being made is that of some very few highly exceptional peoples’ pay being compared with that of all in the economy. Highly exceptional people get high pay? Get away now!

Stop whining about ‘the politics of envy’. Executive pay is indefensible

Sure there’s a defence. It’s other peoples’ money being paid to other people. Nowt to do with you matey.

Bosses now get paid 300 times what workers do.

No, they don’t, some very few do but not all.

The upshot is that the gap between executives and the rest has exploded. In 1965, the gap between what a US chief executive earned and the average worker’s pay was 20 to one. Data last week showed that ratio is now 312 to one.

No, not true.

Here actually is the truth. OK, it’s from a different year but it won’t have changed very much:

Although these samples of 200-350 CEOs are representative of large, publicly-traded US companies, they certainly aren’t very representative of the average US company or the average US CEO. According to the US Census Bureau, there are more than 27 million private firms in the US, so the samples of 200-350 firms for CEO pay represent only one of about every 100,000 private firms in the US, or about 1/1000 of 1% of the total firms. And yet the AFL-CIO, AP and others compare the average annual wages of hundreds of millions of full-time employees working at the more than 27 million US companies to the CEO pay of executives at only several hundred companies, which is hardly a fair comparison.

We can get a more accurate and complete picture of CEO compensation in the US by looking at wage data released recently by the Bureau of Labor Statistics in its annual report on Occupational Employment and Wages for 2013. The BLS report provides “employment and wage estimates by area and by industry for wage and salary workers in 22 major occupational groups, 94 minor occupational groups, 458 broad occupations, and 821 detailed occupations,” including the occupational category “chief executives.” In 2013, the BLS reports that the average pay for America’s 248,760 chief executives was only $178,400. The CEOs of the 200-350 S&P500 firms reported recently represent only one out of about every 1,000 firms in the country (or 1/10 of 1%) that have a CEO at the head. The larger sample of almost a quarter-million CEOs reported by the BLS gives us a much better understanding of “average CEO compensation.”

The comparison being made is that of the top few hundred CEOs, by no means the average or median CEO, against the average worker across the economy. This is those dangly things gain.

For example, the Premiership employs the top 300 or so footballers in the country. There are millions of footballers in the country. And purely by chance the pay of those top 300 or so is about the same as the pay of those 300 odd CEOs. Of the same order of magnitude at least, millions per person per year. People who are really good at what they do make very much more money than people who aren’t so good. My word, that is a surprise, isn’t it?

We can take this further as well. Anyone who started to complain that a Premiership player is paid 300 times the fee due a lower league clogger would be regarded as the idiot ginger stepchild is. Which is probably how we should be regarding those who keep complaining about the level of CEO pay.