Who Really Benefits when Government Cuts CEO Pay?

Do you remember when you had the pile of uneaten Brussels sprouts in front of you, and in an attempt to shame you into eating the loathsome vegetables, your mother would use the cheap line of “finish your vegetables, there are starving children in China?” If you choked down all of your Brussels sprouts, would those starving children somehow feel better that some kid in the U.S. cleaned his plate?

Sorry moms, but we cannot solve world hunger by little Jimmy finishing his vegetables. But politicians in Washington are using this same trick to get you to think that cutting CEO pay will somehow help you out.

First a little background. According to the Economic Policy Institute, in 2005, the average CEO earned $10,982,000. Compare that to the average worker salary of $41,861. The CEO earns 262 times that of the average worker, which means they make more in one day than their workers earn in a year. On top of that, CEO’s can cash in on severance packages that can run in the hundreds of millions, regardless of their performance. Add in the bonuses, the retirement packages, and perhaps the personal use of a corporate jet. Are you jealous? Well, that envy is what these politicians are preying on.

But before you hop on the “stick-it-to-the-man” bandwagon, consider this: In 1981, General Electric hired Jack Welch as CEO. Welch inherited a corporation worth $14 billion. He built up the company and today GE is worth around $500 billion. In 2001, Jim Kilts took over as CEO of Gillette. The corporation had been in a nosedive, losing nearly half of its value in the two previous years. Kilts turned the company around, increasing its market value around $17 billion by its acquisition in 2005 by Procter & Gamble.

CEO’s make the decisions that can either make or break a company. While the salary and benefit package a company pays may sound unfair, consider that a squared-away boss like Welch or Kilts may mean the difference between bankruptcy and multi-billion dollar growth. That means a lot to shareholders. The Welches and Kiltses that are out there are very valuable to shareholders, so to bring them (and the profits they create) to their companies, they must pay big. Otherwise, they go to the competition.

So while Washington has you watching one hand, what is the other hand doing? It may seem as if they are watching out for the little guy. If they truly wanted you to keep more of your money, they would cut your taxes. But since a politician’s two priorities are 1) to get reelected and 2) to spend your money, that is next to impossible. Therefore, we can rule that out.

The truth is they want more money. The solution for everything today seems to be “tax the rich – they don’t need the money.” The top 5% of Americans pay over 54% of our taxes, and the top 1% pay over 34%. Sounds like a lot, but that is not enough to satisfy the left’s hunger for more money. They also seek more control. Politicians are trying to take money from Americans who worked hard and rose to the top, and give it to those who did not in the form of entitlements. This enlarges the already massive throng of Americans that are becoming increasingly dependent on the government, and means more votes for the Democrat party.

It is very easy to get caught up in class envy. But when politicians like Hillary Clinton are calling for control over CEO pay and seeking shared prosperity, we better not get caught up in the hype.