This explains how they get to the ratio. Not based upon lowest paid worker. In fact, if min wage rose as fast as CEO pay the min would be $23.05 an hour now.
http://money.cnn.com/2005/08/26/news/economy/ceo_pay/
CEO pay: Sky high gets even higher
A new report shows top-dog pay bites shareholders, and alleges war profiteering among some CEOs.
August 30, 2005: 12:24 PM EDT
By Jeanne Sahadi, CNN/Money senior writer
NEW YORK (CNN/Money) ? If sky-high executive pay at publicly traded companies gives you vertigo, you might want to read this sitting down.
In 2004, the ratio of average CEO pay to the average pay of a production (i.e., non-management) worker was 431-to-1, up from 301-to-1 in 2003, according to "Executive Excess," an annual report released Tuesday by the liberal research groups United for a Fair Economy and the Institute for Policy Studies.
That's not the highest ever. In 2001, the ratio of CEO-to-worker pay hit a peak of 525-to-1.
Still, it's quite a leap year over year, and it ranks on the high end historically. In 1990, for instance, CEOs made about 107 times more than the average worker, while in 1982, the average CEO made only 42 times more.
The cumulative pay of the top 10 highest paid CEOs in the past 15 years totaled $11.7 billion.
And though the specific individuals in each of those annual top 10 lists changed year to year, many bosses did pretty well throughout the entire period. Citigroup's Sandy Weill, for example, has made $1.1 billion since 1990.
"Pay" in this instance refers to total compensation ? including salary, bonuses, restricted stock awards, payouts on long-term incentives and the value of options exercised during the year.
The report also compares the growth in average CEO pay ? which was $11.8 million in 2004 ? to the growth in the minimum wage. Had the minimum wage risen as fast as CEO compensation since 1990, the researchers calculated, it would now be $23.03 an hour instead of just $5.15. And the average production worker would be making $110,126 a year instead of $27,460.
In some ways, though, comparing the compensation of a company chief to the average non-management worker is a specious argument, said Nell Minow, editor of the Corporate Library, an independent investment research firm providing data on corporate governance and risk.
"I'm willing to pay people based on the value they create," said Minow, who is herself a frequent critic of excessive executive compensation.
"Creating value" can mean a ton of money for the CEO, who presumably is in a position to create the most value for the company. But when it comes to pay, Minow said, "The question is, 'Did they earn it?'"
By objective measures in several instances, the answer, many would argue, is "absolutely not."
The authors of "Executive Excess" highlight what they consider to be war profiteering on the part of several CEOs of defense contractors. One such CEO, David H. Brooks of bulletproof-vest maker DHB Industries, raked in $70 million for 2004. By contrast, in 2001, he made $525,000.
Brooks also sold $186 million in company stock at the end of 2004, when the share price was trading at an all-time high. Immediately thereafter, it fell from just over $22 to under $16. Today it's trading around $7 a share. Analysts attributed the sharp decline in January 2005 to concern over large insider sales, according to reports.
In May of this year, the U.S. Marines recalled more than 5,000 DHB vests in advance of a news report questioning their effectiveness.
The authors of "Executive Excess" note, too, the great disparity between the average defense CEO's pay ? $11.6 million last year ? and that of a military general with 20 years' experience, who makes $168,905. The average private, meanwhile, earns $24,278, including extra combat pay.
From an investment standpointbig pay for the chief is no guarantee of a big payout for the shareholder.
Between 1991 and 2004, the stock of the previous year's most highly paid CEO underperformed the S&P 500 half the time, in some instances by a stunning amount.
The most glaring example was Computer Associates. In 1999, the company paid its CEO $655 million as part of his share of a $1.1 billion stock bonus for the company's three top officers. In 2000, the stock plummeted 72 percent, while the S&P 500 fell 10 percent.
The blame for excessive CEO pay rests not with the CEO, Minow said, but with the company board of directors who determine CEO compensation. And it is those board members to whom shareholders should register their displeasure.
The Business Roundtable, an association of CEOs that lobbies on behalf of big business, had no comment for this article, but invited anyone to read the principles it advocates for executive compensation
