Taxpayers Subsidize Skyrocketing CEO Pay While Workers Pay Decline

September 4, 2008

The Facts

The S & P’s top 500 CEO’s were paid an average of $10.5 million in 2007 which is 344 times what the typical American worker makes, according to a report by the Institute for Policy Studies and United for a Fair Economy. The top 50 hedge fund managers averaged $588 million each, 19,000 times higher than the average American worker. The top paid hedge fund manager, John Paulson of Paulson & Company, earned $3.7 billion last year.

The report says this amounts to the taxpayers subsidizing CEO pay by $20 billion through tax and accounting loopholes; money taxpayers have to make up. The report goes on to say that billions more taxpayer dollars are spent in a variety of ways including government bailouts of failed companies, and government contractors paying their CEO’s over 100 times the pay of average American workers (remember, it’s your tax dollars that’s paying for those government contractors).

In the United States, between 2000 and 2007, worker productivity rose significantly while their real income fell. During that period worker productivity increased by 18% but their real income fell by $2000 per year; the first time in American history this has happened. By comparison, from 1989 to 2000 worker income rose by 10%.

My View

What immediately comes to mind is a question on a political compass test with multiple choice answers; “It is regrettable that many personal fortunes are made by people who simply manipulate money and contribute nothing to their society“. When I originally took the test my answer to this question was “Disagree”, meaning I felt it was ok for people to make money without contributing to society. However, while my answer might be the same now, it would be with exceptions if exceptions were offered.

CEO’s hire “compensation consultants” to help them structure a contract between themselves and the company that is hiring them; often times, with the company paying for the consultant. In an effort to understand how this works, Countrywide’s CEO Angelo Mozilo was questioned by the House of Representatives Committee on Oversight and Government Reform (pdf page 149). A typical outlandish contract is reflected in John A. Thain’s contract with Merrill Lynch. And these contacts always specify that the CEO will be well compensated regardless of whether or not the company prospers. To add insult to injury, these contracts were rewritten after the fall of Enron that makes it nearly impossible for them to get fired.

To make sure these disparities in pay remain in place, worker unions have been demonized and discouraged with fear tactics. While unions themselves were partly responsible for their demise, corporations were the largest contributors to demise of unions. But without unions, workers have no clout to curb the pay packages of CEO’s.



Taxpayers Subsidize Skyrocketing CEO Pay While Workers Pay Decline — 1 Comment

  1. Pingback: After Fannie And Freddie, Some Think US Has Become A Socialist Nation For The Rich « American Citizens News Network

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