Consumer Concerns: CEO pay insults working families

The Los Angeles TimesMay 30, 2014 

Here's one thing to remember: American chief executives make too darn much money.

I'm not saying that you shouldn't reward a person for a job well done. But many CEOs now pull down so much more than their own employees that it's an ugly insult to working families.

Who's the worst offender? That would be CVS Caremark CEO Larry Merlo. According to a recent report from compensation researcher PayScale, his $12.1 million salary last year was 422 times the size of the median CVS wage of $28,700.

I mean, what, did the guy cure cancer? Did he end the scourge of Alzheimer's? Under what possible set of circumstances could the head of not the country's largest drugstore chain but the second-largest be worth 422 times his typical underling?

CVS' revenue increased 3% last year to almost $127 billion. Its profit rose 19% to $4.6 billion. The company stock price jumped 48%.

Those are impressive numbers. But was the company's strong performance entirely attributable to Merlo?

Walgreens, the nation's biggest drugstore chain, saw its profit rise about 15% in the fiscal year ended Aug. 31. Its stock price climbed more than 34% last year.

But the $4 million in pay earned by Walgreens CEO Greg Wasson was "only" 134 times greater than that of ordinary workers' median pay of $30,300, according to PayScale.

It's worth mentioning, by the way, that PayScale isn't some lefty-progressive grass-roots organization kicking sand in the lunch boxes of corporate America's chieftains. The private-equity firm Warburg Pincus said last month that it would buy a majority stake in the company for about $100 million.

Mike DeAngelis, a CVS spokesman, said executive pay at the pharmacy chain "closely reflects the company's financial performance and success."

"We are committed to continuing to approach compensation responsibly, appropriately and transparently," he said.

Katie Bardaro, PayScale's lead economist, noted that the average CEO-to-worker pay ratio for the 100 highest-grossing U.S. companies was 86 to 1, making Merlo's compensation unusually bacon-flavored even by the porky standards of other top corporations.

"The gap in pay is especially striking when you consider that typical workers at more than 80% of the companies examined earn wages higher than the national median household income," she said.

In 2012, the latest year for which numbers are available, median household income in the United States was $51,017. That means half of all U.S. households earned more than that amount, half earned less.

Hundreds of fast-food workers protested outside McDonald's Illinois headquarters recently over the average $9 an hour they receive. They're seeking $15 an hour, or $31,200 for a full year of 40-hour workweeks.

McDonald's wasn't on the PayScale list. But the company's CEO, Don Thompson, received $9.5 million in total compensation last year, which translates to more than $4,500 an hour.

"We believe we pay fair and competitive wages," Thompson said. He added that McDonald's prides itself on offering opportunities that can lead to "real careers" — like his own, presumably.

The standard defense of sky-high CEO pay packages is that they're the only way companies can land and retain top-caliber execs.

This, too, is a poke in the eye of working stiffs. The reality is that corporate boards, acting on the advice of professional salary consultants, routinely approve pay packages based on the relative perks enjoyed by a CEO's "peers."

Every time a fatter package is approved, therefore, the bar is raised for all other CEOs. It's a never-ending game of more-more-more.

California lawmakers have proposed legislation — Senate Bill 1372 — that would tax publicly traded companies at different rates depending on their CEO-to-worker wage gaps.

The California Chamber of Commerce has branded the bill a job killer, which all but guarantees that no Republicans will be found to provide the supermajority required for passage. In any case, it still has to make its way through various legislative committees.

I'm thinking such a measure is a bit heavy-handed. Corporate boards should be responsible enough to keep such absurd income inequality in check.

Unfortunately, when it comes to executive pay, boards seldom act in more than a rubber-stamp capacity. That needs to change.

The next time you're at a CVS store, give a thought to the woman at the cash register. She's paid 422 times less than the CEO of the company.

And is apparently worth every penny.

 

David Lazarus is a Los Angeles Times columnist. He can be reached at david.lazarus@latimes.com or @Davidlaz on Twitter. Read more of his columns at fblinks.com/lazarus.

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