What Would Happen If CEOs Slashed Their Salaries To Zero?

A new report suggests it might not help workers at all.

What would happen if CEO pay were reduced to zero?American CEOs now earn as much as 1,795 times more than their employees. Some activists have organized minimum wage workers, protesting the widening gap, noting executive pay has been rising while workers' pay has fallen. But would workers truly be better off if the bosses agreed to reduced their pay to zero?

On Wednesday, the right-leaning Washington D.C.-based research foundation Employment Policies Institute (EPI) released a report that attempts to puncture labor activists' fantasies that redistribution of executive pay would change the average workers' lives. The EPI, which is funded by restaurant, retail and manufacturing trade groups, crunched the data, looking at what would happen if the CEOs of McDonald's, Starbucks and Walmart were to give away their entire pay to the workers. The result?

Workers' pay would increase just how much per hour
Only Starbucks workers would walk away with a full extra cent per hour of work if their CEO (Howard Schultz) agreed to hand over his entire paycheck. Here's the math.
  1. McDonald's: Total CEO pay ($5,370,666) divided by total number of employees (420,000) = $0.0061 increase per hour for each worker.
  2. Starbucks: Total CEO pay ($3,806,192) divided by total number of employees (160,000) = $0.0114 increase per hour for each worker.
  3. Walmart: Total CEO pay ($6,214,777) divided by total number of employees (2,200,000) = $0.0014 increase per hour for each worker.

What the EPI Report Leaves Out
All three companies in the report have very large head-counts; Walmart, the nation's largest private employer, has more workers than European countries including Latvia, Macedonia and Slovenia have people, according to CIA statistics. Workers at smaller companies would, undoubtedly, see more appreciable gains if their executives shared or even reduced their respective salaries.

Executive Pay Isn't The Whole Story
And for workers and labor activists who are seeking to improve wages and other workplace conditions, CEO pay is just one minor part of the puzzle. As AOL Jobs has reported, companies like Costco and Trader Joe's that have used resources to pay workers well, maintain appropriate staffing levels and train workers in a host of skills have actually found success in the marketplace.

How can spending money on worker development be a successful approach when so many companies are cutting back in hard economic times? According to MIT professor Zeynep Ton, these companies have been able to keep growing because the good treatment of workers leads to better performance, increased customer satisfaction, and as a result, more business.

What do you think?

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Liberal socialists HATE success, HATE people who EARNED money yet ADORE left wing actors, singers, and performers...but let people make it in BUSINESS And all the jealousy comes out at them.

August 21 2013 at 9:38 PM Report abuse -1 rate up rate down Reply
celinaf

http://epsprosperityhotline.com/mzfig

August 18 2013 at 2:04 AM Report abuse rate up rate down Reply
rich

This worthless drivel doesn't take into account stock options or bonuses which make up the bulk of most executive compensation packages. It also ignores the fact the problem is EXECUTIVE COMPENSATION PACKAGES no just the CEO and many companies have dozens of executives bleeding them dry. Let's show a REAL study that reveals TOTAL, ACTUAL executive compensation as a percentage of the profits of this companies. The real data, not this phony study commissioned by a conservative thinktank, would show executives in many cases are practically looting their companies out of existence.

August 16 2013 at 10:30 AM Report abuse +2 rate up rate down Reply
1 reply to rich's comment
Rob Speed

Not really. The report only excluded non-cash compensation. You're correct about stock options (and only marginally), but wrong about the rest.

The CEO of McDonald's had a salary of $1,473,333, but his total compensation was $8,750,893 including stock. Running those numbers works out to $20 per employee, or $0.01 per hour. It's a significantly larger number, but still insignificant when broken down by employee. But even to get that result requires fallaciously including stocks in the totals.

The simple reason is that a share isn't cash. It isn't going to pay for food or a car repair. When an employee makes money from a stock option it's when they sell the shares, usually years after the options were exercised. The entire purpose of giving an employee shares (or selling them at a discount) instead of the equivalent amount in cash is getting employees to have a stake in the company's success. If it were possible to distribute a few million dollars of shares worth $95 each to 420,000 people that would be a start. But just one share per employee works out to total to nearly $40 million. If the company instead sold the shares and used that to increase salaries it destroys the investment benefit, so it's not the same whatsoever.

The best equivalent I can think of would be setting up an investment pool with same number of shares and giving each employee an equivalent share and investment option. Every year each employee would get $3.40 of shares added to the pool on their behalf. They would also have the option to buy $25 of shares for $20. That would be the same as far as the investment angle and totals, but you'd still be talking about a fraction of a penny per hour, so I doubt many employees would even care.

In fact, let's take this the next step by using McDonalds' total executive compensation (as you requested). Additionally, with the other execs in the mix the CEO change becomes much less important, so let's also switch to 2012's numbers. That's especially important since the company did much better in 2012 and the performance bonuses were 5 times higher than 2011. Let's start with the totals.

Salary: $4,916,917
Restricted Stock Award: $4,139,509
Stock Options: $9,322,668
Non-Equity: $36,635,375 (performance bonus)
Other: $12,561,601

Total Stock: $13,462,177
Total Cash: $54,113,893

Note: There's probably a lot of non-cash compensation like (401k contributions) in "Other", but I don't have detailed numbers. It needs to be accounted for anyway, so I just included the entire thing as cash.

That's $128.84 per employee ($0.06 per hour) in cash, and $32 in the investment pool. Of the pool money, $9.86 are a restricted award and $22.20 is optioned (meaning they'd have to invest a few hundred dollars to exercise it).

So there's your real data. Looks like the same result to me.

December 16 2013 at 12:29 AM Report abuse rate up rate down Reply
rafael

This is free market if any of you had the talent to run a multimillion company and was given perks and a huge salary you would turn it down I don't think so.

August 15 2013 at 9:18 PM Report abuse rate up rate down Reply
tazgadon

This system will collapse sooner or later, its socially, mentally, physically, environmentally, morally, and economically, unsustainable.

August 15 2013 at 7:46 PM Report abuse rate up rate down Reply
Charlie

Better to hard link the CEO's pay to that of the average worker. Say at 100 times as much as the average worker makes including perks and bonus. Any pay above that amount could not be deducted as a business expense and should be taxed at 100%. When I started working in the early 60's CEO's made on average around 30 times more than their average employee.

August 15 2013 at 5:00 PM Report abuse +3 rate up rate down Reply
Lfeldmansf

It really is the principle of the matter. Why is the CEO nearly two thousand times more valuable than the employees who actually get the work done? Employees work very hard, especially when workloads are increased due to personnel reduction; nearly all of them take pride in their work and most are grateful to have a job. But when they learn that the executive suite earns over a thousand times more and that the company cares more about the shareholders than the employees...well there is a morale problem in the works.

August 15 2013 at 4:53 PM Report abuse rate up rate down Reply
2 replies to Lfeldmansf's comment
jacksonville Fl

Look at it this way. You have to have an operation. So you go the a hospital. You find out your pay is 20K. So you ask the Dr. Would it be cheaper if the janitor did the operation? I want someone to know what they are doing to work for the company I work for. Knowledge is where the money is at. Some have paid the price for that knowledge and some have not. So you work behind a desk or on a floor. That is your choice where you work.

September 06 2013 at 1:08 PM Report abuse +2 rate up rate down Reply
Rob Speed

Because it's much harder to find someone who can run a company like McDonald's than it is to find someone who can operate a cash register. The root problem is that there are far too many people in this country without marketable skills. The only solution is fixing our broken education system. That's not a quick fix, so nobody even wants to consider it.

December 16 2013 at 12:33 AM Report abuse rate up rate down Reply
Bill

If their pay went to incentives instead of equally distributing it across the board it would mean so much more to many people. For example, if an employee is doing outstanding work they should be awarded accordingly. Even an occasional $100 bonus for meeting certain objectives would do wonders for overall employee moral.

August 15 2013 at 2:28 PM Report abuse +3 rate up rate down Reply
2 replies to Bill's comment
Vince Gomez

Yeah but the unions would whine and moan about that.

December 15 2013 at 10:56 PM Report abuse rate up rate down Reply
Rob Speed

I agree, that would be a much better solution. In fact, in 2012 more than half of the executive compensation at McDonalds was in performance bonuses. In the words of Peter Gibbons:

"If I work my ass off and Initech ships a few extra units, I don't see another dime, so where's the motivation? My only real motivation is not to be hassled, that and the fear of losing my job. But you know, Bob, that will only make someone work just hard enough not to get fired."

December 16 2013 at 12:38 AM Report abuse rate up rate down Reply
Mike

I think that worker morale would be better and productivity would increase if CEO salaries and perks were not so exorbitant.

August 15 2013 at 1:41 PM Report abuse +3 rate up rate down Reply
timkinetron

so misguided...it's not the ceo salary...he is just another worker...it's the all for the shareholder mentality...eliminate corporate taxes and tax the boardmembers as individuals like the rest of us and tax all shareholders on the gross sales reciepts not their dividend profit like the rest of us

August 15 2013 at 1:40 PM Report abuse +2 rate up rate down Reply

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