Since the government’s bailout of Fannie Mae, Freddie Mac, GMC, and Chrysler, CEOs have come under the microscope. They have been attacked and vilified for making enormous salaries while the workers who work under them earn considerably less. Is all of the criticism justified though? Are CEOs really the villains that many in the mass media make them out to be?
When a person works, they are not given a paycheck, rather, they earn it. They trade their time, skills, knowledge, and effort for a paycheck. The amount of that paycheck is determined by what the employer values the employee’s work at.
Take, for example, the Ford Motor Corporation. CEO Alan Mulally earns $26.5 million a year. This amount was agreed upon by Ford’s board of directors, who, in this case, is the employer. They decided that Mulally’s time and efforts were valued at $26.5 million. Mulally, the employee, agreed that his time was worth that much by taking the job. If he thought his time was worth more, he would have looked for employment elsewhere.
Now the average United Autoworker’s Union worker earns an average of $29 an hour. Assuming 40 hours a week, and only 45 full paid working weeks, they make $52,200 a year not including benefits. These workers, through the United Autoworker’s Union, have agreed to this value being put on their time and efforts.
So why is Alan Mullaly’s time, skills, and effort worth $26.5 million and yet an UAW worker’s effort and skills are only worth $52,200? Mullaly creates more profit for the company than a single UAW worker.
In 2009 Ford earned $2.7 billion in profits. One year later, in 2010, Ford’s profits saw nearly a 250% increase, jumping to $6.6 billion. A large part of the credit for this turn around belongs to Mulally, whose policies prevented Ford from having to accept government loans. As a result, Ford’s board of directors agreed to compensate Mulally with 0.4% of all the company’s profits.
The UAW worker, however, worked on making the cars that Ford produces. Their contributions are limited to the cars they work on. As a whole they are vital, but as an individual worker, they are not as singlehandedly responsible for the profits. There are over 41,100 UAW workers working for Ford. If their average compensation is $52,200 annually, they as a whole earn $2.1 billion, and that is without including their benefits.
In effect, Mulally gets paid more because he is responsible for the entire company, not a small part. His work and efforts have been valued more because he produces more profit for the company.
Overall, CEO’s are not evil. They work hard and produce a profit for their company, and they get fairly compensated. For the most part, they do not steal or cheat others out of their money. There certainly are some that do, but as a whole they should not be condemned simply for making money, and being productive members of society.
Sources:
Reuters
http://www.reuters.com/article/2011/04/01/us-ford-mulally-idUSTRE73072S20110401
FactCheck.org
http://www.factcheck.org/2008/12/auto-worker-salaries/
UAW
http://www.uaw.org/articles/uaw-ford-workers-ratify-contract
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