“We’re in the money. We’re in the money. We’ve got a lot of what it takes to get along!”
That line from the Broadway musical “42nd Street” could well describe the mood of the world’s richest people. But it certainly wouldn’t resonate with many others, and a recent report shows why.
Oxfam International’s study, “Working for the Few,” reveals that the 85 richest people have as much wealth as the bottom half of the world’s population.
Donald Bren, chairman of the Irvine Co. and the wealthiest real estate developer in the U.S., is among those 85, according to Forbes magazine’s latest ranking of the world’s billionaires. The Newport Beach resident is ranked the 69th richest person in the world, with a net worth of $14.4 billion. He is tied at No. 69 with Ray Dalio, a hedge fund manager from Greenwich, Conn.
The ranking was released Monday.
Other notable billionaires living in Southern California include Patrick Soon-Shiong (No. 122), a Los Angeles pharmaceutical entrepreneur with a net worth of $10 billion (he’s tied with hedge fund manager David Tepper); Los Angeles entrepreneur Elon Musk (No. 158), founder of Tesla Motors and SpaceX, with a net worth $8.4 billion (Musk is tied with Hong Kong real estate developer Joseph Lau); and Edward Roski Jr. (No. 466), president and chairman of Majestic Realty Co. in Industry, with a net worth of $3.4 billion. Roski is tied at No. 466 with 16 other billionaires including Hollywood director Steven Spielberg.
The pay disparity that separates these extremely wealthy people from virtually everyone else has carried over into corporate America.
The gap between what CEOs and rank-and-file workers at large corporations earn is big enough to fly a fleet of Boeing 747s through. Nearly four years after Congress ordered public companies to reveal their CEO-to-worker pay ratios under the Dodd-Frank Act, the numbers still aren’t public.
But some general calculations have been made that clearly show a widening pay discrepancy.
The AFL-CIO’s Executive Pay Watch reveals that CEO pay has skyrocketed over the past few decades, while the average worker’s pay has stagnated despite increases in productivity. Their calculations didn’t differentiate worker pay by industry, nor did it include employee benefits. But it still reveals the massive gaps that exist between the top and the bottom.
In 1982 CEOs were earning 42 times more than average rank-and-file employees. By 1992 that ratio had grown to 201 times more, and by 2012 it jumped to 354 times more.
According to the AFL-CIO database, Edison International CEO Theodore F. Craver Jr. earned nearly $11.5 million in 2012, which included his salary, the value of his stock and option awards and other compensation. That was 332 times the average U.S. worker’s pay of $34,645.
When contacted, Edison released a statement that said its CEO compensation “is set to be at the market median when compared to other similar companies, in both the utility industry as well as companies in other industries with comparable revenues.”
Edison said it does an extensive analysis of its CEO compensation package, including incentive pay that is based on company and individual performance.
“In 2012, Edison International achieved or exceeded most of its financial, strategic and operations goals established at the beginning of the year,” the statement said.
The AFL-CIO’s Executive Pay Watch also notes that Dominic Ng, CEO of East West Bancorp Inc. in Pasadena, Calif., earned more than $8.2 million in total compensation in 2012, or 237 times that of the average worker’s pay.
The bank noted, however, that East West’s strong financial performance prompted Forbes to include East West in the top 10 of the 100 Best Banks in America for 2010, 2011, 2012 and 2013.
Bloomberg compiled pay-gap statistics that are even more eye-opening. Bloomberg calculated ratios based on the U.S. government’s industry-specific averages for the pay and benefits of rank-and-file workers.
According to their results, the CEOs at eight major corporations earn more than 1,000 times the pay and benefits of the average worker in their respective industries.
Ronald Johnson, the former CEO of J.C. Penney Co., topped the list with a pay ratio that was 1,795 times the pay and benefits of the average worker in that industry, according to Bloomberg.
Gary Kaplan, an executive search consultant in Pasadena, has seen the CEO-to-worker pay ratio widen over the years. And rank-and-file workers aren’t the only ones hurting. Employees in mid-level and upper-management positions are also feeling the squeeze, he said.
“I’ve been around long enough to have seen dramatic shifts in salary differentials,” Kaplan said. “People still get small raises every year, but I can remember a time when it wasn’t uncommon to get a 10 percent raise if your performance was above par. That was very common. But now many raises are not even keeping pace with inflation.”
Kaplan said the situation is unsettling — particularly for the average U.S. worker.
“I have great anxiety about this situation,” he said. “I don’t know how much longer this can continue before there is some form of pushback. I’m not opposed to people becoming successful, because capitalism is the basis of our society. But I worry that if there are masses and masses of people who are classified as under-class and college graduates who are spending the bulk of their lifetime paying off student loans … that there will be some pushback.”
And then there is the issue of morale.
It’s not exactly motivating when you realize that your top boss is earning several hundred times more than you are.
Southland psychologist Karin Meiselman said most people grapple with financial anxieties at one time or another. But the CEO-to-worker pay ratio? To many, that’s the stuff of dreams.
“I don’t think it bothers most people,” she said. “In fact, I think it intrigues them. They imagine that it could be them someday. They look at it like winning the lottery.”
Still, workers often harbor resentment over the fact that their immediate supervisors are making more money than they do, according to Meiselman.
“You seldom hear them complaining about the top CEO, but they often think about their bosses,” she said. “They’re thinking, ‘This guy doesn’t know much more than I do but he’s making more and he gets more rewards.’ ”
Companies often argue that have to pay ultra-high salaries and perks to attract and retain the best talent. But Kaplan said that can easily get skewed by a company’s performance.
“I get that you have to pay for the best and brightest,” he said. But why do these CEOs still get bonuses and stock options in a year when their company’s performance was mediocre or poor? And how come we’re letting so many employees go and yet CEO pay keeps increasing?”
In East West Bank’s case, investors might argue that Dominic Ng’s salary — while extremely high by most standards — is somewhat justified.
Last month the bank reported record earnings of $295 million for 2013. That equated to a gain of 5 percent, or $13.4 million, compared with $281.7 million the previous year. The bank’s non-performing assets fell 7 percent and total deposits grew 11 percent last year to $20.4 billion.
Edison International, parent company of utility Southern California Edison, reported net income of $301 million, or 92 cents per share, for the fourth quarter of 2013. That compared with a loss of $539 million, or $1.65 per share, for the same period a year earlier. That gain included $37 million from discontinued operations.
The Securities and Exchange Commission has proposed regulations that would require public companies to reveal their CEO-to-worker pay ratios, but the agency has yet to finalize them.
“We are expecting that we’ll see final regulations sometime this spring,” said Joseph McCafferty, executive editor of Compliance Week, an information service on corporate governance, risk and compliance.
McCafferty said the move is surrounded by more controversy than might be expected.
“Calculating what actually counts as pay can be difficult because you have pay, bonuses, the 401(k) … it’s not always clear what is part of the compensation and what is not,” he said. “And it’s hard to find data on what every employee is making at any given time because of the differences in global currencies and employees working part time and coming and going.”
Another concern, he said, is that the figures would be industry dependent.
“The wages of retail or food-service employees would look a lot different than the wages of workers at high-tech firms,” McCafferty said.
