More Whining About CEO Compensation Again.

So there was this.

GM Manages to find $22 million to pay CEO as it closes 5 plants and lays off 15,000 workers.

Sigh.

I don’t know how much the average worker at those plants makes, but looking at the low end of pay scale for assembly line workers for GM ($12/hour) 15,000 full time workers comes to $7.2 million per week or $226 million over the course of a year, just from wages and not counting things like employer contribution to SS, Workman’s comp, insurance and other benefits, and so forth that the company is on the hook for. The actual total cost of that labor would be enough higher that, frankly, even if the CEO’s pay was reduced to zero and that money used to pay the workers it wouldn’t keep them at work another week.

OTOH, GM’s revenue for 2018 was $147 billion. Gross profit was $10.8 billion so expenses would be the difference between those or $136 billion. A CEO whose decisions can affect either revenue or expenses even a single percent Can cost, or save the company over a billion dollars a year. Given the value to the company of what a CEO does, $22 million is a bargain.

People make these kinds of comparisons as though there’s some kind of direct cause–workers have to be laid off because of high CEO pay. The comparisons are bullshit. CEO’s get paid what they do because the work they do is enormously valuable to the company. And labor is paid what it is paid because the value the individual worker brings to the company is what it is. Yes, all the workers together bring enormous value to the company. And all the workers together get paid a combined amount that dwarfs the CEO pay. (What I did up there for the 15,000 laid off? Do that for the entire 180,000 or so that GM employs in toto.)

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2 thoughts on “More Whining About CEO Compensation Again.”

  1. A friend of mine is railing on about CEO pay, and claiming that Japanese CEO pay is much less than in the US, and those companies do OK.
    He has not yet answered my question: Why don’t US companies recruit Japanese CEOs and save all that money?

    Like

    1. People point to the compensation that CEOs get and say “greed.” What they never seem to ask is why the companies, and their boards, are willing to offer so much. Yes, a greedy prospective CEO can ask for huge sums in return for his taking the position, but the other side is that if the board doesn’t see that prospective CEO as worth it, they’ll tell him to pound sand and find someone else.

      Once people start looking, really looking, at why the companies are willing to pay CEOs that much then they’ll begin to understand.

      Like

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