Monday, August 10, 2015

CEO pay and the dishonest statists.

Here's Why The New CEO Pay Rule Could Backfire On Its Advocates


When the Securities and Exchange Commission released its CEO pay rule this week, many cheered it as a way to shame companies into moderating outlandish pay packages.
The rule, which goes into effect in 2017, mandates that publicly-traded companies disclose the gap between what their top executives are paid and what their rank and file workers make.
As the New York Times' Gretchen Morgenson put it, "because the rule will generate an easily graspable and often decidedly shocking number, it may energize a cadre of new combatants in the executive pay fight."
It could have the opposite effect.
That is, the CEO rule could expose to everyone that this relentless executive pay campaign is based on little actual facts.
Morgenson, and others, act as though most CEOs are paid outrageous sums, quoting one source as saying that "everybody is outraged about CEO pay." She cites an Economic Policy Institute study claiming that CEOs made almost 300 times what the average worker made in 2013, up from 20 times in 1965.
But economist Mark Perry has thoroughly debunked this and other studies , pointing out that they rely on a very small sample of the largest companies — where executives often are paid extremely well — but ignore the multitude of midsize and small firms.
When you include this broader universe of CEOs, the average pay is about $216,000, Perry notes, which drops the ratio between CEO and worker pay to 6 to 1.
The EPI's Lawrence Mishel and Alyssa Davis, who wrote the study that Morgenson cites, calls Perry's a "clever but misguided critique." Focusing on CEO pay at only the largest firms makes sense, they argue, because "they employ a large number of workers." But even Mishel and Davis admit that firms with fewer than 500 workers employ roughly half the workforce.
In any case, it is obvious that there are plenty of CEOs out there who don't make "too much" money by any reasonable measure. If the SEC rule ends up exposing this fact, it will be those constantly harping about executive pay who might end up feeling the shame.


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