Last year, the average CEO made 257 times as much as his average employee. And that’s just counting salary and bonuses. Add in the enormous profits from stock options, and it’s more like 700 to 1.
How do CEOs make so much? There are six basic ways for a CEO to get rich:
1. The CEO may create a new company, such as Microsoft, Apple, Google, eBay or Facebook. As the new company expands, its stock goes up, thus enriching the stock options of the founder CEO. This is the best kind of CEO because he expands the economy and adds jobs.
2. The CEO expands the business of an existing company like IBM, GE (1980-2000) and McDonald's through the development of new products and services. This CEO is also good for job creation and expansion of the economy.
3. The CEO expands the company by acquiring other companies. Because most acquisitions are unsuccessful, like ITT and General Foods, this approach often burns capital, sheds jobs and weakens the acquiring company. But Boards of Directors frequently reward the CEO simply because of all the "heroic" action.
4. The CEO fails to grow the company but ruthlessly reduces costs, which results in increased profits. More profits result in more CEO riches. This approach is bad for the economy because it reduces the size of the economy and sheds jobs. Unfortunately for America, almost all of the companies in the Dow Industrials fit this negative description. They are making money by ruthlessly cutting costs -- especially jobs. This hurts the economy.
5. The CEO creates or expands his U.S. business by outsourcing production and services abroad. Nike originated the business model for foreign production and U.S. sales. This approach creates new capital and new jobs in foreign countries, but little in the USA. Today, only four percent of the value of an Apple iPhone is produced in America. The Nike business model has made its creator rich at the expense of the American economy and American jobs.
6. The CEO appoints friends and cronies to his board of directors. The super-friendly board rewards the CEO with outsized compensation packages, even though he fails to grow sales, profits or his company's stock market value. A large number of America's largest corporations fit this picture of stagnation and decline.
The sad fact is that there are far more companies led by CEOs in Categories 3 through 6, and far too few in the job-producing Categories 1 and 2.
President Obama has just appointed General Electric CEO Jeffrey Immelt to chair a council on "jobs and competitiveness." Yet, Immelt's own company, GE, has been shedding jobs throughout the last ten years. How can the President hire an advisor to increase jobs when the advisor has become an expert in eliminating jobs?
The truth is that there are very few corporate CEOs interested in increasing jobs. Think about it.
Jobs are a cost factor. CEOs get rich eliminating cost factors. CEOs do not get rich increasing job costs.
This is why the USA is currently enjoying a "jobless recovery" which finds corporations getting richer and people getting poorer.
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