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People Just Don’t Know the Ratio Between CEO’s Pay and Average Worker

Shareholder Value Means (Outsized CEO Pay)And so the drumbeat of articles continue.

There has been a couple of interesting articles but I’m going to focus on the one about the psychological research on people’s viewpoint on CEO pay. This article came from HBR.org, through Pulse/LinkedIn, titled “CEOs Get Paid Too Much, According to Pretty Much Everyone in the World”, dated 9/23/2014.

If you have access to Pulse, the link is: http://pulse.me/s/2MDwV0

After reading this article, now I know why people aren’t agitating over CEO pay that much: it’s because they have no clue what the gap really is.

The researchers, whose work will be published in Perspectives on Psychological Science, asked people throughout the world what they think the ideal gap should be and what they think it is. They found that throughout the world, no matter what country or belief system they come from, most people tend to arrive close to the same answer as far as to what the ratio should be for CEOs. Of course, there will be differences from country to country but the researchers found the average ideal to be 4.6 to 1 whereas the average estimated ratio was though to be 10 to 1.

To me, the ratio gap goes back to all of the activities being taken to meet the shareholder value: outsourcing, automation, lower wages, push back on increasing minimum wage, constant focus on cutting costs, layoffs, etc. All of these activities have effectively kept the lid on employees’ wages while allowing CEO’s to spiral upward.

However, the market is an ecosystem. As the middle class dies, it will get harder and harder for companies to find value as there will be no customers to buy their goods and services. You can’t just focus on the shareholders; you have to focus on the ecosystem which is composed of customers, workers, communities as well as investors/shareholders.

So what is the US ratio? Try 400 to 1.

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