According to the Huffington Post, “the average pay ratio of CEO to median worker is 204-to-1…[and] four CEOs earn more than 1,000 times the salary of their median worker.” This is supposed to make us crumble in embarrassment as a Society. But in reality, the pay gap between CEOs and employees is insignificant.
Why? Because the pay gap doesn’t negatively affect employee pay.
Walmart’s CEO Pay Doesn’t Affect Overall Employee Pay
Walmart has one of the highest pay gaps of almost any company. Their CEO is paid about 26 million dollars. This is an 1,133-to-1 ratio of CEO to median employee pay. Sure, 1,133 is a large number, but not compared to 1.4 million, the number of people employed by Walmart.
If you took the 26 million dollars the Walmart CEO makes and divided it between those 1.4 million employees, each employee would get a raise of roughly $18.57 per year. If they’re working just 30 hours a week, this amounts to about one penny ($0.01) per hour more.
Now, many Walmart employees get paid far less than the median wage. What would happen if we only handed out the CEO’s money to the lowest paid employees, giving it those that needed it the most?
In early 2016, Walmart gave raises to about 1.2 million Associates. Considering this, let’s just take the bottom 30%.
30% of the 1.2 million equals about 360,000 associates. If we take the $26 million the CEO makes and divide it by 360,000 we get about $72 per year for each associate. At 30 hours per week this equates to a raise of less than five cents ($0.05) per hour.
CEO Pay Decreases Wouldn’t Dent the Cost of a $15/Hour Minimum Wage
According to Glassdoor, Walmart’s pay for a sales associate is about $10 per hour. Leftists are advocating for the minimum wage to be $15 per hour.
Assuming they work about 30 hours a week, with 360,000 employees getting a raise of just two dollars per hour the total cost would be over $1.12 billion. The CEO’s salary would need to be completely cut more than 43 times over, just to get 360,000 associates up to $12 an hour.
Now, this wouldn’t be the total cost overall. Once you hand out a two dollar an hour raise to the bottom 360,000, you are going to have to give raises to 100’s of 1000’s of employees that are on a pay bracket slightly above them. If we just gave a two dollar an hour raise to the next level of 360,000 employees, the CEO’s salary would then need to be cut almost 87 times over, amounting to about $2.25 billion.
Even after all that, the bottom 360,000 associates wouldn’t be making the suggested $15 an hour. To get them up to $15 an hour, it would cost about $2.8 billion for the initial 360,000 employees. When we again calculate in the next level of employee raises, you’re looking at more like a minimum five or six billion dollars.
Raising the employee pay to $15 per hour is not only 230 times the salary of the CEO, but well over one-third of Walmart’s net income before taxes.
Walmart Pays Their CEO a Large Salary for a Good Reason
Some CEO’s are paid $200,000, some $500,000, some $1,000,000, and a very few are paid 10’s of millions of dollars. If Walmart knew they could recruit a CEO making $500,000 a year to work for them at $2,000,000 per year, and still get the same level of commitment, experience, expertise, and reliability, they would.
They don’t bring in hundreds of billions of dollars a year by wasting money on CEO’s that aren’t worth what they’re being paid. The reason CEOs at larger companies are paid more is because they are given more responsibility and expected to increase profits more than other CEOs. It’s that simple.
Walmart is not handing out extra money to their CEO because they just really like him, and hate the lower-level, pee-on associates. They’re paying him crap tons of money because he has proven himself to have the skill set and experience necessary to perform the best. That CEO is more likely to increase profit and bring in more customers than the others.
Also, paying a high dollar to the CEO helps the lower level employees.
When Walmart offers $26,000,000 to potential CEOs, they are creating competition for the position. Through this competition they are more likely to get the best CEO and the most growth. More growth means more employees and more opportunities for advancement/higher pay for those employees.
Reagan once said, “we have so many people who can’t see a fat man standing beside a thin one without coming to the conclusion that the fat man got that way by taking advantage of the thin one.” He couldn’t be anymore right today. People tend to see someone with more wealth and assume they got it by taking advantage of others.
The truth is, rich CEO’s are not inherently evil gremlins taking advantage of the little guy. They are more likely paid large salaries for the same reason as LeBron James, Tom Brady, and Conor Mcgregor. They’re some of the best at what they do, and they help grow and bring in money for their employer.
Demonizing these people is irrational and immoral. Especially considering that reducing their salaries, or eliminating their salaries altogether, wouldn’t even put a dent in the pay gap.