Saturday, July 13, 2013

Drucker's CEO Pay Suggestion 15 to 25 Times the Lowest-Paid Employee Pay. Actual CEO Pay Today: 354 times Median Employee

Payday Disclosure (on the Drucker Institute blog):
Today, the CEOs of the largest U.S. companies make 354 times more than the average rank-and-file worker. At some companies— including Abercrombie & Fitch, CBS and Nike—the ratio is in excess of 1,000 to 1.

As far as Drucker was concerned, this sort of pay structure was absurd. “It is surely not professional altogether for people who are employees and not ‘owners’ to pay themselves salaries and bonuses greatly in excess of what their own colleagues, that is, other members of management, receive,” Drucker wrote in The Frontiers of Management. “And it is not professional to pay oneself salaries and bonuses that are so far above the social norm as to create social tension, envy and resentment. Indeed there is no economic justification for very large executive incomes.”

In fact, in The Changing World of the Executive, Drucker recommended that companies have a “published corporate policy that fixes the maximum compensation of all corporate executives, after all taxes but including all fringes, as a multiple of the after-tax income of the lowest paid regular full-time employee (including fringes).” He added, “The exact ratio is less important than that there should be such a ratio.” (His suggestions ranged from 15-to-1 to 25-to-1, depending on the size of the company.)
Thanks for posting this. I have been posting about the damage done by excessive executive pay for years. In doing so I have pointed to Drucker as someone who saw this practice as extremely damaging.

I agree the burdens of regulation need to be considered. The abuses by those on boards and in the senior executive positions of the control they have over the corporate treasury to take what they don't deserve completely overwhelms the regulatory burden. We sadly have many boards and senior executives that are enriching themselves at the expense of companies and doing great damage to those companies, the stock holders, the employees and other stakeholders.

Related: Narcissistic Cadre of Senior Executives - Tilting at Ludicrous CEO Pay 2008 - Pay Practices Say More About Respect for People Than Words Say - CEOs Plundering Corporate Coffers - Obscene CEO Pay (2006)

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