The following visualization appeared in Business Management. The visualization was brought to my attention via Chart Porn.

The site says:

The pay gap between executives and the average American worker has always been pretty big, and seems to have increased as the world’s economy grows. But with the recent recession bringing the most desperate financial conditions the world has seen since the Great Depression, one could be excused for expecting this gap to be reduced.

However, the recession has only served to make things tougher for the American workforce as unemployment recently hit a 26-year high and companies made drastic cuts to salaries and working hours.

My first observation is that a conclusion is being drawn about the increasing gap between the American worker and CEO’s, but data from a single year only is provided. The gap may be widening, but this graphic does not speak to this.

This graphic speaks to the fact that the CEO earns what takes other workers years to make. So, my question is whether this is a meaningful benchmark?

Is a comparison between the CEO and an average or minimum wage worker the right way to put the CEO’s compensation in context? The CEO works for the Shareholder, who’s goals usually revolve around maximizing profit over short and/or long terms (other goals are possible, of course). Below is a table of CEO Salary (taken from the graphic), Company Net Income (taken from the most recent annual report), and the ratio between the two.

Notice that most of the values are hundredths of 1%. Is this too big – too small? I think that is a more meaningful discussion.

If the number of years it takes for workers to make what the CEO makes is significant, I think you need to put this in context with how many individuals work for the CEO or percentage of total wages earned by the CEO. Who knows, those metrics may make the same point?

It just seems absurd to me to compare the salaries of CEO’s of multi-billion dollar companies to the wages of minimum wage employees or the average American worker? Even comparisons against the President are misleading. I’d argue that the President is under paid (grin, unless you measure him against net profits).

It seems self evident that there is a large gap between someone who makes millions and someone who makes thousands. A professional football player makes an order of magnitude larger amounts of money then does the hot dog vendor. In my opinion, in capitalism, fair compensation is when each individual takes away the value that they brought to the organization. Although all people have value, the cleaner who empties the trash at night does not bring the same value to an organization as the CEO.

For me the bigger issue is when salary has nothing to do with performance as in Ford. Losing money for years and relatively high salary for the executive.

In general, I don’t have an opinion as to whether CEO salaries are too high or not. I do believe that metrics/benchmarks should be related to the thing measured. Wouldn’t revenue under management, employees under management, or some sphere-of-influence related measurement better put compensation in context?

I’d love to hear what you think!!

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