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Who Cares What a CEO Makes?

SAN FRANCISCO, CA – SEPTEMBER 22: Oracle CEO Larry Ellison delivers a keynote address during the 2013 Oracle Open World conference on September 22, 2013 in San Francisco, California. Ellison kicked off the week-long Oracle Open World conference that runs through September 26. (Photo by Justin Sullivan/Getty Images)

Many of my more liberal Facebook friends have had a burr under their saddles for the past couple of years regarding the pay of top company CEO’s (Chief Executive Officers). They enjoy pointing out that 20, 50, or 70 years ago the boss made a smaller percentage of pay compared to the rank and file worker. And the question I always ask is, “Who cares?”

Income Inequality

I guess I somehow missed the rule that says there is supposed to be an “etched in stone” percentage between hourly workers and CEO’s that can’t be violated. One person’s pay check can’t rise unless the other one does.

Salaries and hourly pay are based on two important facts. One, the value of the employee to the company, and two, the ability of the company to pay the agreed on salary or hourly compensation. Any work done by anyone must be a win-win for both parties. A position is offered for a set amount of compensation and the employee either rejects or accepts that offer and work begins.

An entry-level employee doesn’t expect the same pay as an experienced manager in the same company. Why? Because there is always a learning curve that the employee goes through that, over time, translates into higher pay because the employee gains skill, knowledge and experience and becomes more valuable to the company. High turnover is very costly to employers and good employees are worth their weight in gold. Currently the average pay for hourly employees (not including salaried managers or CEO’s) in September 2013 was $24.09 per hour.

Apples and Oranges

If I’ve been a McDonald’s employee, flipping burgers for two months, what do I care what the manager or owner or CEO of McDonald’s make? That has zip to do with what I’m making. My job is to be the best burger flipper I can be and move up the compensation ladder as far as I can as fast as I can.

Now my previously mentioned liberal friends are of the belief that some of that CEO money is a gross overpayment for the job the CEO performed. Even though they have no idea what that job even entails.

While they staunchly reject “trickle down” economics they feel that, in this case, some of that CEO money should trickle down to increase the hourly rates of the lower income workers. And again I would ask why?

Payroll costs for most retail businesses run about 15 to 18 percent of sales. Artificially inflating the payroll would be a poor business model. More sales mean more employees to service the increase in customer traffic. By the same token, fewer sales will result in fewer employees. And what some CEO makes has no bearing on that payroll cost or number of employees and their compensation.

Some Final Thoughts

“The grass is always greener on the other side of the fence.” If I’ve learned one hard and fast rule over my working life is that life is not fair. There is always someone better off and someone worse off. You are paid what you are worth.

As much as I would like a “chicken in every pot,” that’s just not the way the free enterprise system works. The bottom line is this “No one can be successful in business unless they help someone.” The more people they help profitably the better it is for everyone from the CEO to the janitor. A strong economy is the real answer to any perceived income inequality. The market pays what the market can afford whether it’s at the top or the bottom of the food chain.

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