Alan Reynolds

On a recent CNBC show, Maria Bartiromo asked how I could possibly not agree that typical CEO pay was excessive, since the average CEO earns 431 times the salary of an average production worker.

In my typically diplomatic style, I said that was untrue, a bad case of comparing apples to oranges.

 In past columns, I explained what is terribly wrong with these so-called production-worker wage figures in "Unreal Wages" and what is wrong with CEO pay estimates in "CEO Pay Parade." But this alleged ratio of CEO pay to average wages is much worse than its separate parts. Dividing one bogus statistic by another bogus statistic compounds the errors.

 Couldn't some journalist take the trouble to at least ask where these numbers come from? The statistic about CEOs' earning 431 times as much as production workers seemed to come from the other guest on the CNBC show, a representative of the American Federation of State, County and Municipal Employees (AFSCME). It actually came from a Dec. 6 press release from the AFL-CIO, which wisely neglected to mention the actual source -- a polemical pamphlet on "Executive Excess" from United for a Fair Economy and the Institute for Policy Studies.

 That pamphlet claims executive compensation among 367 corporations rose to $11.8 million last year. Ironically, the AFSCME press release said, "Chief executive officers at big U.S. companies were awarded $5.74 million on average last year, 30.2 percent more than in 2003, according to the Corporate Library."

 But dividing $5.74 billion by 431 would leave average workers earning $13,318, which is too obviously ridiculous. The pamphlet instead claims "the average production worker made $27,460 in 2004." Also ridiculous and also ironic: Not one of the well-paid members of the AFSCME union is included in that so-called average. What is included is the weekly wages of part-time workers, which were then foolishly multiplied by 52 weeks.

 There are 15 million "production workers" in retailing, who worked an average of 30.7 hours a week in 2004, and 12.5 million in leisure and hospitality, who worked an average of 25.7 hours. If CEOs worked 26 to 31 hours a week, then it might seem fairer to compare their weekly salaries with these. But it would still be ridiculous.

 Any pay figures for top executives at just a few hundred top firms are strikingly exceptional -- not average -- and largely an artifact of including stock options in the year during which they are exercised.

Alan Reynolds

Be the first to read Alan Reynolds' column. Sign up today and receive delivered each morning to your inbox.

©Creators Syndicate