Tuesday, July 03, 2012

PolitiFact | Viral Facebook post on CEO-worker pay ratio has obscure past

PolitiFact | Viral Facebook post on CEO-worker pay ratio has obscure past:

Several of my facebook friends have posted this and, well, there are so many things wrong with this picture it barely deserves mention, but if it is not mentioned, people will only see one side of the discussion. 

So let's see is this true? 

Yes US CEOs are highly paid both historically (excluding late 1990s-early 2000s) and relative to their peers in other countries.  CEO pay has fallen somewhat since the high flying internet boom.  SO CEOs are paid a great deal (pun intended), BUT this is in part due to size differences (larger firms pay CEOs more), the contribution the CEO makes (example in Japan CEO plays a lesser role), and form of pay (more pay is form of options (which CEOs do not value as much as recorded value) the higher the pay.

Moreover, even the numbers (ratios) are questionable:

From PoliticalFact:

"... don’t doubt the chart’s underlying point that the ratio of CEO pay to worker pay is high in the United States, and is likely higher in our free-wheeling economy than it is in the historically more egalitarian nations of Europe.

But in its claim that the U.S. ratio is 475 to 1, the chart conveys a sense of certitude and statistical precision that simply isn't warranted -- and which is contradicted by the facts. The latest number for the U.S. is 185 to 1 in one study and 325 to 1 in another -- and those numbers were not generated by groups that might have an ideological interest in downplaying the gaps between rich and poor"

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