Tuesday, November 23, 2010

Everything I can dream of:

Learning about wage discrepancy between the top and the bottom has frustrated me the past month or so. Apparently the average total compensation of a CEO of a Fortune 500 company in 2009 was about 9.2 million dollars. That is so much money! Honestly, what could a person use that much money for each year? If I had that kind of money...

What are would an exhaustive list of the material things that I would spend money on?
  1. Pay off all of my debt, and all of my family's debt. In my immediate family that is round about $300,000. Assuming that some of my cousins will have student loans and I think that most of my family has paid off their houses, let's make it $400,000. For all of the debt in my entire extended family. 
  2. Buy a new car for all of the people in my family that can not readily afford new cars. That is somewhere around a dozen people. At about $27,000 for a nice Prius that is almost $325,000.
  3. Buy a few sweet cars for myself. A Porsche, Ferrari, Ducati, and something that handles really rough trails, probably a Toyota. Total cost about $700,000.
  4. Buy a piece of land with a nice house in the Estes Park, Nederland, Boulder area. For a four to six bedroom 5,000+ square foot house about $2,000,000. 
  5. Expeditions, with no expense spared from my point of view, to Everest, K2, G1, G2, G4, G5, Trango Towers, Antartica, Alaska, Yosemite, Bugaboos, Aconcagua, and the Torres del Paine park. Total cost by my estimation $240,000.
  6. It would be nice to have investments capable of supporting my lifestyle. Perhaps $3,000,000 earning 6% interest and assuming that 4% interest is reinvested to account for inflation that leaves $60,000 the first year for living expenses increasing at 4% per year.
  7. A private jet! For about $1,500,000 a small party jet (Cessna III among others) can be all yours.
In total that comes to just under $8.2 million. Yep, I could have everything I can even imagine wanting and still pay a million dollars in taxes if I had the chance to be an average Fortune 500 CEO for one year. 

What is the point of this post? To point out the ridiculous income differences among the upper echelon of our society and the rest of us. For a one time, after tax, check of $8 million I would never have to work again and have everything I can imagine. Now because of the way salaries and averages work perhaps only 1/4 of Fortune 500 CEOs earn more than $9 million a year. 

The point is, how much of a reward is that extra $10 million bonus or stock that some CEOs earn yearly really worth? What is the difference between $10 and $20 million in compensation? In my view that $10 million difference is 200 well paid employees. What can you possibly send all of that money on? More houses? More cars? More expensive food? Famous works of art? Those are all valid things to spend money on, yet I submit that most of that money gets invested. That is to say that if a CEO was paid seven million a year for ten years after buying several large houses, and other extravagant things, after taxes he could still have $20 million in accounts and investments!

From my perspective, dozens of employees have the ability to contribute more than one manager. That is to wonder what sort of performance difference is noticeable between one employee earning $4 million a year and 21 employees with one earning $3 million a year and the other 20 earning $50,000? To be honest, I do not know. It seems to me that the incentive between three and four million dollars, a 33% raise will ultimately earn less money for the company than twenty employees who are motivated to have a job versus be unemployed. Performance bonuses and pay increases I feel are essential to motivating workers at all levels to be effective and efficient. Also, I have to wonder what the value of any one person is, economically. Is one person who earns $15 million worth the same as 300 people who earn $50,000? I mean, I guess that they really are worth that much because someone is paying them that much, but really? One person worth as much as 300 others? What if CEOs bid on jobs? Would companies hire the lowest qualified bidder?

In a twist from economics to life I will post a quote from Saving Private Ryan:

Lieutenant Dewindt: "... 22 guys dead."
Captain Miller: "All that for a general?"
Lieutenant Dewindt: "One Man."

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