What should a CEO earn?

Capitalism is not economics. It is cronyism.

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The figures presently available say that the average earnings of a CEO for the top 350 corporations in America is $21 million annually.  Does this make sense?

In Los Angeles, which is a city with high salaries, a delivery man makes around $43,000 annually.  Therefore, the average CEO earns 388 times that of the delivery man.  By the way, the average CEO to worker pay ratio found by Public Citizen is 310 to 1, not 388 to 1.

Why don’t these corporations buy highly educated people for much less?  For example, you can hire a Harvard lawyer with 30 years experience in Los Angeles for less than $1 million annually.  So you could hire three such people for one-seventh of the amount the average CEO is paid.  Tim Cook at Apple is paid $133 million annually.  Isn’t that getting a bit insane?

What does a CEO do that is worth so much?  Make decisions for the corporation based on experience, and represent the leadership within the corporation and in public.  The representation can be done effectively by a good public relations officer.  The decisions can be made effectively by two or three smart people with experience in the industry.  The entire package shouldn’t be more than $3 million a year, tops.  That would mean that $18 million of Cook’s salary could go for other purposes.  Like paying the workers another $5,000 annually, perhaps?  That would pay for 3600 raises.  Creating a much happier workforce.  Or maybe just money to go to the shareholders.

Why aren’t the shareholders complaining?  Sometimes because the CEO and his/her buddies hold most of the shares.  But in the case of Apple, the largest shareholder is Vanguard, with 7.83% of the shares.  But Vanguard’s interests are actually the property of its investors.  With that kind of leverage, why isn’t Vanguard demanding a cut in salary for Time Cook?  If the $18 million went to the Apple shareholders,  Vanguard would get $1.4 million.  You’d figure that rational shareholders might want a piece of that action.

If you cut all the CEO salaries at an average of $18 million saving per company, then the 350 companies together would get back $6.3 billion collectively.  Now, that isn’t peanuts.  Shucks, if those companies collectively invested an additional $6.3 billion in production development, we could probably expect some real improvements in product and services.  But instead of paying the CEO something reasonable ($1 million? $3 million) they are forking out $21 million on average.

Apple could pay Time Cook $5 million and net $128 million for the shareholders or for the development of products.  Or Apple could go around buying up local companies by the fistful and thereby get even more money in the kitty.

The top three institutional owners of Apple are Vanguard, Blackrock, and Berkshire Hathaway, which collectively hold over 20% of the stock.  The rational thing for those three institutions to do is question how much Cook should be paid.  Of course, they don’t, because the people controlling those entities are buddies with Cook and don’t want to take away money from him.

All of this goes to show that capitalism is not economics.  It is cronyism.  The system is designed to shove money into the pockets of those in control.  If Apple were really controlled through true capitalism, the money that is paid to Cook would go to the shareholders or into corporate investment.  (Cook only holds 0.02% of the total Apple stock).  So: don’t believe that capitalism is a rational system to maximize profits for the owners.  It isn’t.

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