What does that yacht represent?

If you asked your average CEO this question, in reference to a boat that he owns, he would probably tell you that it represents years of hard work. He would be right, but there is one thing he would not tell you (and probably does not even admit to himself).

That yacht represents years of hard work, but not his hard work. Yes, his work is represented in it, but only a very small portion of it actually represents his work. In reality, that yacht represents the hard work of thousands, tens of thousands, or hundreds of thousands of minimum wage grunt workers (ok, maybe a bit above minimum wage, but not by much). Furthermore, the money that paid for it actually was probably earned in weeks or months, though the hours added together probably do add up to years.

If you do not see what I am getting, what I am saying is that the money that paid for that yacht was money fairly earned by bottom level employees, that was given to the CEO, instead of the employees that earned it. Now, I am not saying that every bit of profit generated should only go to the person directly responsible, but rather that each lower employee is being robbed a few dollars an hour, so that the CEO and upper management can have more money than they will ever need.

You might disagree with this (please shut up about it if you are in the upper management category, since you have a vested interest in opposing my position), so I am going to give you my reasoning.

Normal bottom tier employees in the US get paid $10 an hour or less. Now, assuming that this is the actual value of their labor, what do you think fair hourly wages would be for someone with a masters degree or PhD would be? Additional education does increase the value of one's work, so obviously, they should get paid more. In addition, they had to pay for this education (actually, in the US, most students are only paying for part of their education, while the government covers the rest), so the cost of time and money spent to gain the education have value. I submit that if the inherent value of education makes it worth paying for, then once you have graduated, the entire cost of your education has been compensated by the increase in value of your work. In other words, you can either claim added value for the education, or for the cost of the education, but not both.

Work experience also generally increases value of work (generally, but definitely not always). So, a person with an equivalent degree to a PhD, with twenty or thirty years of work experience obviously is capable of more valuable work than someone without, again, in most cases.

So, back to the question: How much more is this person's work worth? I think that 10 time is probably a bit low. It is probably fairly reasonable for someone with a masters degree or maybe 25+ years experience, but I would buy that it is a bit low for a PhD with decades of experience. How about 100 times? Is it really possible that one persons work can be worth 100 times that of another person? It probably is possible. In engineering, it is not uncommon for one engineer to be 100 times more productive than another. In business, though, does 100 times seem reasonable? Note that we are considering value of work and productivity, not the actual money generated from that work (businesses do this all the time, when they choose to pay their lowest employees, who make up a majority of the workers, orders of magnitude less than the relatively small number of upper management). I think it is safe to say that 1000 times seems a bit absurd. Even in the above mentioned engineering example, generally a small group of 5 or 6 engineers can get similar productivity as a single 100 times engineer (this may not make mathematical sense right off, note that I am not adding the individual work of 5 or 6 people, rather I am accounting for the fact that generally groups working together can accomplish far more than each person working individually, especially in engineering). So, if 5 or 6 people can do the same work as the one, it cannot be considered reasonable that someone should be paid 1000 times that of the lowest workers. (Another thing to take into account is that complex executive style decisions can usually be made better by large groups of entirely uneducated people than one highly educated person. So, if 100 grunts can make group decisions better than one executive, the value of the work of the executive cannot reasonably be considered more than 100 times the value of a single grunt, even if his decisions generate far more profit than that.)

So, by this reasoning we have established that it is very likely that the work of a CEO cannot be worth more than 100 times the work of a single grunt employee. Now let's assume the grunt employee is getting paid $10 an hour. This means that the highest reasonable hourly wage for a CEO is $1,000 an hour (and even then, this value seems absurdly high). We are going to select a grunt that works 40 hours a week, with no vacation or sick time to determine yearly wages. With 52 weeks in a year, that makes his yearly pay $20,800. Now, I'll give the CEO the benefit of the doubt. Let's assume that it is fair to say that he works around the clock, every hour of every year. At $1,000 an hour, 24 hours a day, and 365 day a year, he would make $8.76 million a year. Ok, so most CEOs actually make less than this. Some make more and some, a lot more. Now, since we know that CEOs need to eat and sleep like the rest of us, let's see what happens when we make this more reasonable by assuming they work 16 hours a day (it is probably much closer to 12 or 14, if even that). Let's also give them 4 weeks (28 days for the math) of vacation time (time not spent working is non-productive and thus cannot be considered into fair pay). That gives us $5.392 million. A lot of CEOs do make more than that, though not by a whole lot.

Ok, so the grunt makes $20,800 a year, without vacations, while the CEO makes $5.392 million a year with. Even after the above reasoning, this seems pretty absurd. The CEO is getting paid over 259 times more. Yes, he works more hours, but does is really seem fair to pay him that much more for less than twice as many hours and several years of education?

Now, other things to keep in mind are cost of living. Everyone has this. If we assume that the grunt is renting an small apartment for $500 a month (from my experience, this seems to be a fair guess at a national average for reasonably habitable 1 bedroom apartments), then we can subtract $6,000 a year. If he pays $100 a month for food (this guy never eats out, always buys in bulk and rarely or never buys prepared food), that is another $1,200 a year. We will just assume that he never has doctor bills, utility bills, walks everywhere (no gas or insurance costs), and does not need things like toilet paper or deodorant. This means that he is getting $13,660 a year in spending money. The CEO, is getting $5.385 million in spending money. Yes, I know, he has a bigger house, a car, a yacht, etc... to maintain. These things are luxuries. He has them, because of the spending money. All he really needs to get by is the same things the grunt needs.

Ok, so now for the point. If the grunt is getting $13,660 spending money and the CEO is getting $5.385 million spending money, the CEO is getting 394 times the spending money that the grunt is. Now, in real life, the grunt is probably paying well over $12,000 a month for cost of living, and is bringing home less than $8,800 a year. The CEO is bringing home more like 611 times the spending money of the grunt, but even 394 times the spending money seems pretty absurd.

So, where is this money coming from? Don't tell me it comes from the corporation. The corporation does not make money, they just do business to earn money from people who are willing to pay for their products. You might tell me that the money comes from the customers and you would even be half right. If you follow the actual cash flow, the money does seem to come from the customers. It also comes from the employees, at least, in any instance where the employees are not being paid fairly.

Again, my reason is as follows. Let's take a company that starts out charging fair prices and paying fair wages. This company is essentially neutral. It does not unfairly take money out of the economy or withhold money from parts of the economy that has fairly earned it. Now, let's say this company raises its prices. It does not raise wages equivalently. It is now ripping off both its employees and its customers. By raising prices, it requires that others pay more for goods. When others have to pay more for goods, they will have to raise their own prices (that, or they will suffer unfairly). Eventually, everyone will have to raise prices, to compensate. If this company does not increase the wages of their employees, they are now paying their employees less than they were originally. Now, you might think that the employees are still getting paid the same and if you are counting pay only in dollars, you would be right. The catch is that the inflation caused by the increase in prices reduced the value of the money itself, thus if the people are getting paid the same amount of money, they are being paid less value for the same amount of work. In other words, the money that the company is overcharging is also the money that they are underpaying. When a company pays one person more than the value of their work, the company is helping that person steal money from their customers and their employees.

Now, let's take this one step further. Most CEOs also get many extra work benefits. To get a fair representation of how much they are actually making, you have to quantify the value of these benefits. Yes, the grunt is also getting benefits (he is working 40 hours a week, after all). Now, assuming the grunt can afford all of the benefits (most can't), the value of his benefits are still hundreds of time less than those of the CEO, if not thousands (this is not unusual, and that is just counting stock options). So, the CEO is making 200-500 times what the grunt is. Some of this is fair, but even if his work is only worth half of that, he is still overpaid by $2.69 million a year. He is stealing $2.69 million a year from the employees and customers of the business. That amount of theft is considered grand larceny. In the US, it is illegal for a poor person to commit this crime, but for a CEO no one even blinks.

Ever wondered why our economy is doing poorly? It is because the bottom resource is not even valued enough to pay for its own upkeep. Some products are fair to negotiate the lowest price for, but since labor costs actual man hours, if it is treated like one of these products, the economy will continue to flounder until it fails.

So, what does that yacht represent? It represents the theft of millions of dollars from those who can afford it the least. It represents the work of thousands or millions of other people, from whom the value was taken forceably and without consent. It represents the largest flaw in our legal system. Any other form of theft would be punished with severe consequences. This form, though, is rewarded with more riches than one person can ever spend.

Lord Rybec