How and Why Unknown CEOs of Unprofitable Companies Still Earn 299x Than Their Average Employee

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The pay gap is stark and irresponsible.

Let me cut to the chase.

The rags to riches story isn’t all that common. Americans are obsessed and too hopeful about rising the ranks which is damaging their future. I know it sounds harsh but it’s reality.

This pervasive wealth fantasy is abundant in Americans’ lives filled with unrealistic expectations. They are overly optimistic about the prospects for upward mobility and massive growth within a few years.

The structural realities of American society of upward mobility are more mythical than real. Unfortunately, family circumstances are the biggest predictor of a person’s own economic circumstances which all align accordingly with the highest paid CEOs to date.

Without education, family support, a healthy upbringing and a secure mental state, everything can go downhill. Same thing with startups. 90% of them fail due to a lack of preparation, timing, luck and poor cohesion amongst the team along with a poor idea. Team work makes the dream work.

Despite the disaster of the pandemic on American’s finances and future prospects, Silicon Valley profited the most out of it. Those who’ve landed a coveted ride with their companies towards IPO or fancied a SPAC with a hot celebrity this past year grew their wealth on average by 70% totaling a combined value of all the FAANG companies at $10 trillion simply by either selling user data to 3rd parties, distributing ads, turning people into addicts or making them feel bad. The internet has become a dangerous place with too many choices and not enough thinkers.

Silicon Valley powered the world during its darkest days and they are compensated the most, despite health care and essential workers keeping us alive and in some way connected as well.

Default Pay

We are obsessed with titles, especially online. For some reason we are still amazed at someone who’s an entrepreneur or self-employed when in reality, we are all founders in our own way and not all founders get into the top 1%. From athletes to moms, we all have titles that define what we do and should be better compensated since there’s a heck of a lot of work that goes behind the scenes.

But for those at the top of the ranks in C-suite companies that we’ve never heard of, do they really deserve to be paid 299x more than their average worker employed around the clock, exposed to the virus, spending time away from their loved ones, not able to live off that one salary, a slave to their time, and paying more to get the job done?

To put it simply, life is unfair. Luck is a huge factor in everything and the more you do, the more luck is presented. Opportunity comes your way when you are prepared and the timing is right. You can’t plan it but what you can do to manifest more luck is by taking more action, something these overpaid CEOS capitalized and took advantage of since they define their own pay.

Although you can argue these tech unicorns and S&P leaders revolutionize the world in their own ways, they’re usually not acting in consumers/customers/users’ best interests specifically within the deceptive lucrative system of social media. The more addictive something is, the better it is for their business and hence, more profit!

More risk = more reward and the hardest part is starting. The worst risk is not taking one at all and with those elements combined, this has all lead certain CEOs of public companies to earn disproportionately higher pay during a recession and beyond without much justification as to why they deserve that much.

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Open-Door

A top executive’s pay comes down to a variety of factors beyond the hours worked or the quality of their work. These pay factors include benefits stock ownership, appearances, partnerships, tenure and client attention. Traditionally, those with a higher lucrative position typically stayed longer at the firm and built it from the group up, especially if it’s a startup where the first few people earn relatively the same and little for the first first years until it catapults.

You risk your whole life to build a company and that’s part of the job. Weighing the risk to reward comparison is crucial so you know what you’re getting into. It’s easier to loose more than what you put in than gain.

There’s no doubt these founders of public unknown companies took a big chance many of us wouldn’t bother with and were rewarded but do they deserve all of it especially during a deadly pandemic or even when the company is failing?

The average S&P 500 company CEO made 299x ties the average worker’s salary last year acorn got FAL-CIO’s annual Executive PayWatch report. This means executives received $15.5 million in total compensation marking an increase of more than 4260k per year while the avenger production and non-supervisory worker in 2020 earned $43k, up just $900 a year.

As inflation and the labor shortage are hitting the recovery hard, businesses are getting creative in how they want to incentivize more employees to join. From free college tuition to juicy bonuses, employers are hopeless and need help yet most wages aren’t rising nearly as much as goods are based on the CPI index.

Even if your salary does increase which clearly won’t be as much compared to a CEO of a small cloud firm, you would still need to pay more for things due to inflation. From gas to food, tuition to airlines, wages aren’t keeping up and not guaranteed to be consistent.

Imbalance is our economy, the recovery, inflationary effects and WFH bound have caused the pay gap to widen. The economy clearly isn’t correlated to the stock market.

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Who, What, Where, Huh?

According to CNN Business, the highest-compensated CEO in 2020 was Chad Richison of Paycom, who received more than $200 million in salary and stock awards that vest over time.

Other companies with executives topping the list of highest-paid CEOs include General Electric, Regeneron Pharmaceuticals, Hilton, T-Mobile, Nike, Microsoft and Netflix.

As a personal finance business guru, I would say I have decent knowledge on the companies that make up the major indexes of the Dow, S&P, Russell 2k and NASDAQ and all I have to say is that Paycom is a first for me. Compared to the FAANGS, Paycom is a tiny company yet that clearly doesn’t matter because it powers millions of businesses with their payment processing behind the scenes.

The most skewed pay scale belonged to Aptiv, which had a 5,294:1 CEO-to-worker pay ratio last year. While the company’s CEO, Kevin Clark, was compensated with more than $31 million in 2020, its median employee pay was $5,906.

On average, CEOs of S&P 500 companies saw their total compensation rise 5% in 2020 while the average median employee pay grew only 1% at those same companies.

Companies in the consumer discretionary industry, including retailers like Amazon, had the highest disparity with an average 741:1 CEO-to-worker ratio.

We won’t even get into the fact that majority of these executives are male. Some reports say women earn $.32 or $.81 cents of the dollar and by retirement on average women earn $1.5 less than men.

Learn here about the shocking stats.

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Undercover Boss

The average CEO salary at an S&P 500 company is a little more than $1m. This is typically comprised of stock ownership/stake, bonuses, options and yearly based salary for the position regardless of how poor or well the company nor the individual performed. The base pay is only a fraction of an executive’s total compensation.

On the other hand, performance-based compensation accounted for an additional $14 million.

The sneaky part is that pay isn’t generated based on effort, deals, progress or the worst, time as lower heads of the company are judged upon. With an executive position, it’s troubling to realize that your salary is almost guaranteed even during a pandemic. When you stop relying on company’s profits, it is sure to skyrocket.

Although a CEO is deemed to know and do everything, the larger the company gets, the less they seem to do. They represent a face to the brand by being a universal marketer and spokesperson. They will be the first one on CNBC or host an event to publicly advertise their company. An intern won’t be there the CEO will. Having charm, good looks and generous character sure helps.

You can learn about how looks influence success here.

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Help?

At the start of the coronavirus pandemic last year, many CEOs and top executives announced they would be taking a pay cut or foregoing their salaries altogether. Sadly, the larger the corporation, the less generous they were to improve lower-paid employees’ wages nor make up pandemic losses. They only increased them for newly hired employees temporarily.

It sure doesn’t look good to the public but what can we realistically do as consumers? We love and need their products and they’ve become so powerful we cannot stop making them money.

Companies have a way of sweeping their questionable past under the rug especially in 2020 as heads of companies were barely impacted by the crisis and instead profited immensely from it.

Monopolies in this capitalist world are only getting bigger and smaller company heads are raising their pay while giving little to nothing back to those who keep it afloat. Leading with ethics is a core principal of the business world. These executive may have mastered telling the truth and giving back their time to their clients, yet when it comes to taking care of the people they really need, heads are truly spoiled and disingenuous regardless of what they choose to spend their $300m paycheck on.

For a thriving democracy and financial system, every worker should be compensated for the work they do behind the scenes, the effort they put in, the character they present and the dedication they commit. During bad times, it would only make sense for the top heads to disperse more to the bottom half.

It is a responsibility to share when you have too much.

You’ll never need it all and feel better anyway.

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Atticus Capital

Hey! We're Atticus Capital, a start-up personal finance/investment tech company here to simplify investing for everyone! Check us out here: oneatticus.com