Saturday, June 13, 2015

The Pay Gap

Here is an interesting corrective on the nonsense CEOs make 311 times the average worker.  But I'd like to point out something others tend not to notice.
So we now know the greatest problem with the AFL-CIO statistic is that it is not representative of all CEOs, just those at the nation’s largest companies. The report does reveal an actual fact: there is a CEO to worker pay gap. The average CEO in the United States earned a salary of $178,400 in 2013, compared to $46,440 for the average worker (both figures exclude benefits). This is a radically different picture from the misrepresentation of the AFL-CIOs data report, which enthusiastically takes a group of outliers to draw conclusions from. The pay gap between the CEOs the AFL-CIO sampled and the average worker is a multiple of the gap between the actual average CEO and average worker.
Before benefits, note it says parenthetically "both figures exclude benefits."

A CEO of a company is denied practically nothing, but at a large company he is obliged to "play the game" that is sit through soul-killing meetings with politicians, attend charity events which bore him to tears, deal with pesky issues and never have enough time for family.  He is underpaid.

The small business owner also is denied nothing, and inasmuch as his business is his lifestyle, his activities are ordered to simultaneously business and lifestyle.

Let's take a new business with $360,000 in sales, a 50% gross profit margin, and ten per cent net.  In this case, cost of goods sold is $180,000.  Although we would never straightline purchases, let's pretend a 30 day turnover on inventory, which would mean the owner is in charge of buying $15,000 worth of inventory a month.

Now that inventory, and the logistics, and the paperwork is time-consuming, but that is just to get the goods in your warehouse ready to ship to your customers, against the orders you have received.

Getting those orders, having a warehouse, keeping it going, managing it all, all that is overhead.  So of $360.000 in sales, and $180,000 cost of goods (or landed warehouse value) we have a balance of $180,000 gross profit.  From the gross let's, for ease of elucidation, remove the net profit of (10% of $360,000)  $36,000.  $180,000 gross profit - $36,000 net = $144,000 that your company spends on salaries, sales commissions, royalties, travel, dues and subscriptions, heat light rent, professional fees, entertainment, goodness gracious... so much money, so little time.  But every cent is spent (or under the direction of) by you, the owner, the CEO.

This takes time, $12,000 a month in discretionary income on top of $15,000 per month on non-discretionary (since it is for what people ordered).

Yes, $12,000 discretionary, but with the double effect of pleasing both you and your customers, in both categories.  When you are working in joy having passed through the passion of the problem to solve, everything you do contributes to your happiness.  The payoff is the lifestyle attendant to the ends to which you work. In fact, most small business CEOS tend to take a very small salary since any money taken out is taxed, and it can just as easily be spent inside the business on the owner as a business expense, with the money going farther as pre-tax dollars.  The law provides for this.  Indeed it is so common the IRS, I hear tell, will come after some CEOs for making too little!

The big 500 CEO is being paid in order to accumulate, in the big 500 distorted definition of wealth.  The accurate definition of wealth is the degree to which how many people have access to what range of goods and services with their own earnings.  Only a free market can effect this, and socialism and capitalism interfere with the process, but in different ways.  A pox on both socialism and capitalism.  Well, they are poxes themselves on the comity.


"well-being," Old English wela "wealth," in late Old English also "welfare, well-being," from West Germanic *welon-, from PIE root *wel- (2) "to wish, will" (see will (v.)). Related to well (adv.).


from Late Latin passionem (nominative passio) "suffering, enduring," from past participle stem of Latin pati "to suffer, endure," possibly from PIE root *pe(i)- "to hurt" (see fiend). 

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