Why Jobs in the United States Went Abroad

Disclaimer

The remarks here are my own opinion. They are food for your thoughts. You are entitled to accept, reject or ignore them.

Introduction

There are some obvious reasons why the United States had experienced job loss due to companies moving their jobs overseas in search of lower labor costs.Middle management jobs is part of the jobs loss. This result in a hollowing of the middle class in the United States that is the strength of its consumer power.

One reason is the obscene size of CEO’s pay. This article looks at how many median workers can be hired with a CEO’s pay.

In reality, no matter how rich one person is, there is a limit to how much a person can eat; how many clothes a person can wear, how many places a person can be at and how many cars can one person travel in at any one time.

CEO’S Pay Increases 99 Times Faster Than Typical Worker Pay Since 1978

Source: Economic Policy Institute

Top CEO’s Pay in 2016

Bloomsberg published an article titled “ Apple’s Cook Reaped $145 million Last Year, Most of S&P CEOs”. The article was written by Laurie Meisler, Alicia Ritcey and Jenn Zhao and published on 29 June 2017.

Rank CEO Company Total Salary Cash Awards Exercised Options Valued Stocks Other
1 Tim Cook Apple 144,865,519 3,000,000 5,370,000 136,117,800 377,719
2 Reed Hastings Netflix 106,311,606 900,000 105,394,772 16,834
3 John Hammergren McKesson 97,624,527 1,680,000 6,036,000 72,184,870 17,135,260 588,397
4 Len Schleifer Regeneron Pharmaceuticals 93,649,008 1,242,000 2,235,600 89,942,500 228,908
5 Safra Catz Oracle 85,924,435 950,000 80,698,400 4,255,498 20,537
6 Marc Benioff Salesforce.com 85,029,639 1,550,000 3,100,000 79,080,844 1,298,795
7 Mark Parker NIKE 70,196,878 1,550,000 7,305,902 53,650,260 6,610,908 1,079,808
8 Neal Patterson Cerner 67,113,776 1,025,000 1,755,750 63,884,100 448,926
9 Nicholas Howley TransDigm Group 63,626,264 32,750 55,368,561 8,224,953
10 Michael Mussallem Edwards Lifesciences 62,393,657 976,731 2,228,226 48,806,448 10,206,153 176,099
11 Richard Smith Equifax 60,021,241 1,450,000 3,045,000 39,505,939 15,900,934 119,368
12 Robert Kotick Activision Blizzard 57,648,532 2,375,858 5,590,414 49,515,037 167,223
13 Walt Bettinger Charles Schwab 55,265,131 1,041,667 10,639,350 39,567,341 3,900,141 116,632
14 Leslie Moonves CBS 54,932,098 3,500,000 32,000,000 18,284,394 1,147,704
15 Brian Roberts Comcast 53,863,868 3,013,510 10,667,827 30,391,200 5,531,400 4,259,931
16 R. Adam Norwitt Amphenol 52,913,287 1,061,000 1,400,520 50,325,822 125,945
17 Lowell McAdam Verizon Communications 52,501,957 1,600,000 3,200,000 47,060,610 641,347
18 Alan Miller Universal Health Services 51,304,865 1,600,061 1,360,053 46,067,600 938,544 1,338,607
19 Omar Ishrak Medtronic 50,989,783 1,548,216 6,070,758 13,556,856 29,723,654 90,299
20 Rich Templeton Texas Instruments 49,359,054 1,164,083 3,682,817 36,091,027 8,095,617 325,510
21 Shantanu Narayen Adobe Systems 48,758,196 1,010,260 1,342,500 7,700,423 38,652,220 52,793
22 Bob Iger Walt Disney 48,326,994 2,500,000 20,000,000 24,621,167 1,205,827
23 Marc Casper Thermo Fisher Scientific 46,833,309 1,407,471 4,196,625 10,322,771 30,386,639 519,803
24 Jeffrey Bewkes Time Warner 46,551,319 2,000,000 14,650,000 8,984,229 20,713,217 203,873
25 Marillyn Hewson Lockheed Martin 43,833,403 1,634,231 8,159,848 33,639,496 399,828

Source: Data compiled by Bloomberg from SEC filings

Methodology: Includes current S&P 500 CEOs who were in their jobs for the entirety of their companies’ last fiscal year.

Source: Bloomsberg

What are Senior and Middle Manager Pays?

Source: GlassDoor

Source: GlassDoor

Source: GlassDoor

Income Gap Between CEO Pay and Median Worker Pay

If you look at the following chart, you can translate the ratio of the CEO Pay to worker pay into the number of median worker that can be hired with the CEO’s pay.

Source: Glass Door

What is the Cause?

In my personal opinion, the main cause of such obscene top management pay is the compensation package and the salary structure. The chief drivers are the big name compensation consultancy companies. Naturally the top management that pay steep fees for the services of these compensation consultancy companies naturally pick the ones that would give them the best deal for themselves.

In these salary structure models, salary is paid based on job. There is nothing mentioned about paying based on the person’s abilities. If the hiring company’s interview panel found nobody that can do the job but decide to hire someone anyway, that person would be paid a compensation package for that job grade.

Source: Tower Watson Global Grading System with 25 Job Grades

The differences in these job grades are word formations and mathematical additions. There is no study of abilities and behaviors to back up these structures; in other words, they do not reflect realities of the jobs versus the job incumbents. In addition, these models have a narrow view, as they do not consider the social impact. This is an important aspect because businesses make profits by serving society and gives back to society through the provisions of jobs, through which people not only provide for themselves and their families but raises the general standard of living.

Why This is All Wrong

Here are the reasons why over compensating CEOs is a concept that had gone out of whack. In business, it takes a team. The top management cannot do it all alone.

In business, its net profit should be used in a few key areas:

  • As rewards paid out as dividends to shareholders.
  • As retained profit to meet uncertainty as well as to cease opportunities.
  • As rewards to employees for their efforts.
  • To contribute to cash flow so that the business can carry on.
  • For replacement of assets such as capital equipment and buildings that are used in the production of good and services.

It does not make sense to give shares of the business to top management as a reward. They are in a position to manipulate the business and in doing so affect the share prices. Yet share options or shares are very much a part of CEO’s compensation package.

Source: Bloomsberg

Source: Bloomsberg

People in top management are mortals. They have limitations. They cannot foretell the future. They can make wrong decisions and mistakes. They have both strengths and weaknesses. If people in top management are able to sustain business, then explain why organizations like Kodak, Polaroid, Compaq, Barings Bank, Bethlehem Steel had ceased to exist.

Industry leaders are rare and they are found, not bred for example you cannot say that Tim Cook is the equivalent of Steve Jobs; or that Kaz Hirai is the equivalent of Akio Morita.

Akio Morita: Comparing Japanese and American Business Practices

What Happens When a Business Closes

When a business do not do well, the business decision is to outsource, retrench workers, close down business units. The CEO still have his job and pay.

When a business closed down, the CEO would able to retire in comfort with the millions that he have. Workers have to look for another job, seek financial help from social welfare services or become homeless.

Importance of Social Impact

The concentration of wealth in the hands of a few individuals means that is less distributed across the different classes of people in society. This is a good reason as to why wages are stagnant.

The hollowing of the middle class meant not only an impact on the economy but an impact on future generations that they are bringing up. These are the future scientists, engineers, teachers, pastors and so on.

How the Middle Class Got Screwed

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