Excessive CEO Pay vs. Overcompensated Public Employees
by Richard Rider, Chairman, San Diego Tax Fighters
4 February, 2011
Phone: 858-530-3027
Whenever there is a discussion of the overcompensation of government employees, the public labor union defenders go to their playbook for retorts. Each response is based on a grain of truth – or rather a grain of half-truth. Let’s take one of my favorites.
“Public servant pay and pension abuses are trivial compared to the millions of excessive pay and benefits for big business CEO’s. THAT is where public outrage should be focused.”
This “excessive CEO pay” is a widely accepted concept. We KNOW it is true because, well, CEO’s make one heck of a lot more that we do. Clearly, the union apologists want to deflect the public’s growing anger against government unions and redirect it at evil business CEO’s.
Though tempting, I’ll not here try to defend this supposed CEO excess. Let’s go with it. Let’s consider the magnitude of this perceived CEO problem.
According to a recent study by a left wing anti-business think tank, in 2009 the average S&P 500 CEO received $8,419,411 total annual compensation (pay and benefits).
www.ips-dc.org/files/2433/EE-2010-web.pdf page 5
These are essentially the 500 biggest corporations in America. Let’s round that CEO figure up to $10 million.
If “we” (via government fiat) reduce CEO compensation 50%, that would save consumers $2.5 billion. That’s a lot of money!
Or is it?
Coincidentally, $2.5 billion is roughly the city of San Diego’s unfunded liability for its employee/retiree pension and health care plans. No, not the COST of city workers which, even disregarding the unfunded liability costs, is roughly 80% of the city’s general fund. $2.5 billion is just the SHORTFALL the city owes.
If this $2.5B is the shortfall cost of just one good-sized American city, what is the cost to taxpayers of the overcompensation (and unfunded liabilities) of ALL the federal, state, county, city and other government budgets? Think a trillion+ dollars.
Okay, but we consumers still don’t like overpaying for our goods and services. When we buy a product, how much of the cost of that product is for the overcompensation of the greedy CEO’s?
The total sales for the S&P 500 (the biggest 500 businesses) in 2009 was $7.99 TRILLION. That figure is considerably higher in the 2010 recovery, but such numbers are not yet available.
https://www.sp-indexdata.com/idpfiles/indexalert/prc/active/pressreleases/2009%20500%20fgn%20sales%20v2.pdf
So, of that low 2009 $7.99 trillion figure, what percent is $2.5 billion – our presumed excessive CEO compensation?
0.03%.
That’s THREE ONE HUNDREDTH OF ONE PERCENT cost to their customers. If we instead cut CEO pay 100% (workers’ paradise model), we’d save just 0.06%.
Sure, I don’t want to pay even a little extra for my goods. I always want lower prices.
But how big a deal is 0.03% compared to just the sales tax alone? In most of San Diego County, the sales tax is 8.75%. Hence our sales tax is over 291.7 times higher than the “overcompensation” cost for the CEO’s.
And that’s just the sales tax. Throw in all the other taxes that a corporation pays for their operation — sales, property, fuel, payroll, etc. Those are costs that — like the cost of the CEO — are passed through to the customers — and are at least 100 times larger than the $5 million supposed overpayment of the CEO.
And then there’s the corporate income tax on the profits. For most S&P corporations (the ones making money), they pay between 25% and 40% of their profits away to the federal and state governments.
Do the corporations “pay” the tax? Not often. Mostly they tack on the cost of such taxes to the price of goods the consumer buys. Assuming a 30% average corporate income tax on profits averaging 7% of sales for the S&P 500, in 2009 that’s $167.79 billion in corporate income taxes that are largely passed through to consumers. ($7.99 trillion x 7% profit x 30% tax)
Bottom line? While excessive corporate CEO pay naturally galls the envious, it is a trivial issue in the cost to taxpayers and consumers. Go to where the money (and savings are) – government employee excessive compensation – and the huge pass-though cost of these abuses to all Americans.