CEO’s And Minimum Wage – Let’s Do The Math
According to the AFL-CIO web site the average compensation for CEO’s (Chief Executive Officers) in the US is $12,259,894 while the average compensation for the average worker is $34,645 or $16.66 per hour. CEO’s rarely, if ever, receive their compensation in cash like an hourly paid employee. They are compensated in stock options mostly and that ties them to the success or failure of the company.
CEO’s Make More – So What?
What does Bill Gates or Warren Buffet or the Walton’s or the Koch Brothers income have to do with you? The short answer is nothing. What does your $16.66 salary have to do with a $7.25 an hour worker? The short answer is nothing.
Can the $7.25 hour worker work their way up to $16.66 or more? The short answer is absolutely. Can the $7.25 worker get to $12 million? In the US — yes.
Why Do We Pick On CEO’s?
Why do we always put CEO’s in the crosshairs? There are people in other professions that make way more than $12 million a year and they ARE paid in cash not stock options. What about the top 50 professional athletes?
- Tiger Woods (Golf) $78.1 million – 6 times more than the average CEO
- Roger Federer (Tennis) $71.5 million
- Kobe Bryant (Basketball) $61.9 million
- LeBron James (Basketball) $59.8 million
- Drew Brees (NFL Quarterback) $51 million
The lowest paid professional athlete in the Top Fifty, Matt Schaub (NFL Quarterback), makes $22.3 million, twice the CEO pay.
How come these rich guys get a pass? Instead, we go after people responsible for thousands of employees and shareholders who make products most of us would be lost without.
I don’t see other golfers picketing for more prize money in front of Tiger Woods house. Every player on the Cleveland Cavaliers makes less than LeBron James. I don’t see them resenting their pay or his.
How Minimum Wage Works In The Real World
A hypothetical business does $1 million gross in yearly business. Most retail businesses try to keep their payroll costs at, or below, 15 percent. In this case there would be $150,000 (15% of one million) available for payroll or enough to pay 10 full time minimum wage employees $15,000 per year each.
If minimum wage goes to $10.10 per hour what effect would that have on our hypothetical business? That would put full time minimum wage at $21,000 per year.
In order to keep my payroll costs at 15 percent, I am either going to have to increase income, or lay off three employees. I have no choice but to lay workers off because I can’t immediately bring in enough additional income in one monthly pay period to keep them all on.
If the minimum wage goes to $15 and hour I have an even bigger problem. I’m now paying $31,000 per employee, which means I can now only afford 5 employees. But I am still doing a million a year in gross business.
How to Do More With Less
In the past I could justify hiring ten people to do a million a year in business at the old minimum wage. Now I have to do that million dollars with five less people. How will I do that?
Five less people will slowly take its toll on my business in poorer customer service, more errors, and unhappy customers. Each employee would have to perform at twice the level they did previously. My only real option is to reduce the amount of customers to a more manageable level for the five employees to handle but not sacrifice income. So I have to raise my prices.
Now, instead of 2,000 customers spending $500 dollars, I need 1,333 customers paying $750 to make the same $1 million with half the employees I used to have and pay the ones remaining $31,000. But the real cost was in the loss of over 600 customers and the remaining ones paying more.
Some Final Thoughts
If I add some automation then I might be able to hire more people because machines can produce more than humans in many respects. Not knocking human effort but looking at options that fall outside the free market environment when mandatory rules are placed on the business.
I would not be able to keep ten employees making $30,000 until I somehow double the business to $2 million. (15% of $2 million = $300,000)
The business has to survive or everyone goes home with nothing. Today’s picketers want $15 per hour. How long will it be before they take to the streets demanding $20 or $25? And how long before you begin to notice the effect on your income at checkout?
More pay to fewer workers will swell the unemployment lines and make more people dependent on government. Are you beginning to get the message?