Ever considered how much more than you your boss is worth? Wherever you work, they’re almost certainly earning more than you, but S&P 500 companies have taken it to the extreme. The average CEO earns 312 times as much the median salary of their workforce.
What are they doing that makes them worth so much more than the rest of the employees? Assuming all employees are working 40 hour weeks, could those CEOs really be generating the equivalent value of 12,480 hours of work every week?
CEOs and capitalists will claim that they do generate such huge value, because their decisions ultimately lead to the profits that businesses make. But are the decisions they make really that difficult?
Let’s consider Tim Cook at Apple, one of the world’s most valuable companies. Since becoming CEO in 2011, he’s reported to have realized over $2.39 billion in total pay from Apple. About 533 times more than the median Apple salary, though it apparently peaked at 1,447 times more in 2021. So if Apple’s average worker does a 40 hour week, was Cook really providing Apple with the equivalent of 57,880 hours a week?
Capitalists will tell us he deserves it because he has controlled Apple while it has grown to be worth as much as $4 trillion. That sounds like a fair argument to an extent, but Apple used to be an exciting and innovative business. During some 15 years of Cook in charge, I can only think of three notable things that Apple has done.
Their watch has captured more than a fifth of smart watch sales, though it’s believed to be one of the least profitable products in Apple’s hardware range. They spent more than $10 billion on developing a car before cancelling the project after 10 years with no end product. And they released a relatively expensive VR headset that’s sold in relatively small numbers. (I’ve ignored Intel to Arm as most Apple buyers would consider colored iMacs more consequential.)
Everything else is just iterating on products Steve Jobs left. When did you last get excited about an iPhone launch, including the folding one?
So, while Tim Cook has been successful in terms of Apple’s value, has he really been an exceptional leader? I recently wrote that I could train a monkey to run Boeing more profitably than their ex-CEO Dennis Muilenberg. Apple is a more complex prospect, though, and I’m not sure I’d trust the monkey to even match Tim Cook. But I bet you and four friends could have run Apple just as successfully as him. Research shows that groups generally perform better at decision making than individuals.
Of course, we need to decide how we rate success. Under Steve Jobs between 1997 and 2011, Apple spent $0 on stock buybacks. Stock buybacks are a popular technique to maximize stockholder value and push up the stock price by increasing the earnings per share (EPS). Jobs didn’t worry about that, though. He believed that you maximize stockholder value and increase EPS by creating innovative products that people want to buy.
Cook absolutely believes in using profits for stock buybacks to maximize stockholder value. Under him, Apple spent about $877 billion buying back their own shares, the largest buyback scheme in history. And that has helped Apple achieve its high valuation. Which also hasn’t hurt Tim Cook as that helped increase the value of stock he receives as part of his pay, pushing his total compensation to $2.39 billion. When his total base salary for his 15 years as CEO was $45 million or less.
I’ve highlighted Tim Cook because he is a prominent CEO leading a prominent business, but what he’s done is no different to what the senior management of most large companies do.
Which helps explain how the wealthiest 10% of Americans have hoarded 68.3% of all US wealth, leaving the poorest 50% a measly 2.5% between them.
So, is your boss really worth so much more than you?
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