By Steven Clyde
Not many days go by without each of us hearing about how much CEO’s bring home per each year, of course implying that 1.) They don’t deserve this seemingly “excessive” amount of compensation and have acquired it off the backs of those they exploit 2.) There is something in particular about being a CEO that’s much less noble to that of someone like say, Oprah, who is worth billions.
Walter Williams, the brilliant economist we all know and love, shaped my view on this in a way I probably never could’ve conceived prior. He pointed out that when you take the top ten CEO’s average annual salaries and compared them to the top ten celebrity’s average annual salaries, it paints an ironic picture for your opponents. Could it really be true that celebrities averaged (at the time) $100 million a year, while CEO’s averages $43 million. It only serves Williams legacy justice to update this information and continue this debate with our friends on the left.
The Claims, and the Logic That Follows:
Let’s first start with the initial claim that that CEO’s make hundreds of times more than their workers. One reason you should be instantly suspicious, is no two studies or articles claim the same amount of pay. We also can’t go as far to judge the intellects of the average person by assuming they don’t realize that no one earns a constant stream of income yearly. It will always change, whether to a greater or lesser extent. So how do people end up misconstruing this data? It’s pretty easy to actually.
- For example, in this article by the Economic Policy Institute they claim that “The CEO-to-worker compensation ratio, 20-to-1 in 1965, peaked at 376-to-1 in 2000 and was 303-to-1 in 2014, far higher than in the 1960s, 1970s, 1980s, or 1990s.” 
- Another example is this article by Dr. Andrew Chamberlain where he claims “Across all companies, the average CEO pay was $13.8 million per year, the average median worker pay was about $77,800, and the average ratio of CEO pay to median worker pay was 204. In other words, on average, CEOs earn around 204 times what his or her median worker earns.”
- Payscale, a company that does work regarding compensation analysis, has yet another vague “statistic”: “The average CEO-to-worker pay ratio for the 168 companies included in this report stands at about about 70-to-1, with some CEOs making more than 300 times the median salary of their employees – just in cash (base pay, bonuses, profit sharing, etc.).”
Critical thinkers will instantly notice the problem(s) with these “studies”: they can’t seem to get a consistent answer that doesn’t vary by the tens of hundreds. While some would think this proves their point, it actually proves ours quite well, which is that people in the 1% or even the .01% are a constantly changing class of people. According to Thomas Sowell, who’s spent a lifetime doing research on just these subjects, founded that “More than half the people who were in the top 1 percent in 1996 were no longer there in 2005.” Therefore, not only is is fallacious to demonize CEO’s, but we would never be able to consistently bash the same CEO’s. In fact, in 2015 “the 400 richest people in the world had net losses of $19 billion.” So much for exploiting the system, right?
What if we gave away their money?:
Let’s take the concept a step further: What if we were to take all of the 400 richest CEO’s who had a combined net worth of $2.4 trillion in 2016, and re-distribute all of that money solely to other adults in the USA. It’s estimated that in July 2016, the U.S. population consisted of 323,127,513 individuals, and as of July 2015, 22.9% of the population were those under the age of 18. So can approximate that there are roughly 250 million adults. (we will update this data later once we have new census information)
$2.4 trillion/250 million = $9,898.09
Each adult would get less than $10,000, and that’s after soaking pretty much all the billionaires. It’s estimated in another Forbes article that there are 540 billionaires which a net worth $2.399 trillion. Again, it just shows the inaccuracy in attempting to display this information. On one hand, they claim the top 400 billionaires in the USA are worth $2.4 trillion, yet claim when you add 140 billionaire’s statistics to that list they are worth a tad bit less. The only correct answer is that this information constantly changes, and it can’t be measured properly.
CEO Pay vs Celebrity Pay – Here’s where you test them on their principles:
So what does all this mean then? If on one hand, we should be ravaging against CEO’s and demanding they pay their employees more, we must also note that under ceteris paribus this ideal must hold constant when dealing with other individuals who earn vast sums of annual income yet are not a CEO per say. But does it? Let’s examine.
When looking at the ten highest paid CEO’s for the past year (a few of these compensations are from prior years) we find that the top ten CEO’s earned a total of $616,400,000, for an average of $61,640,000. About $62 million.
When looking at the ten highest paid celebrities for the past year, we find that the top ten celebrities earned a total of $964,500,000, for an average of 96,450,000. About $96.5 million.
“But look, CEO’s are making more on average than they did a few years ago and celebrities are making a fraction less, at least based on Williams claims! CEO’s are still taking over!” is to be heard as a last resort, because this kind of empirical evidence brings into play a stark paradox: that though we wanted to be able to blame the producers because they are the ones that employ so many people (and therefore we can point to exploitation), a lot of the blame must actually fall on those that are involved in entertainment categories such as music, sports, or talk show hosts where the product received is more subjective than tangible items which we receive from producers.
Neither CEO’s nor celebrities should be the in the crosshairs of pundits; neither can be demonized rationally on the simple basis of compensation (crony capitalism is a separate argument against business owners). Whether or not a computer is produced by a company with a rich CEO, or a show is being played by Adele in a local concert hall, the value that is gained by either the computer or Adele’s voice is subjective to each person. The computer is produced because someone values it, and Adele is brought onto world tours because people want to hear her around the world.
*On a side note, look for another article like this in the future where we compare ALL the data over the years based on annual salaries and create line graphs that will show exactly what we know they will show*