[Climbs up on soapbox]
Over at the New York Times, one of the more popular articles is a piece on trying to live on $500,000 in New York City. The article has prompted an interesting discussion over in chessdev’s journal, and I’d like to use my lunch break to expand on it a bit here. I’ll note that I also live in a high-cost city (Los Angeles), in a neighborhood where the homes might be categorized as upper-level manager homes (as opposed to, say, blue-collar union homes, white-collar engineer homes, or storied executives/entertainment industry homes). These are homes that at their top price were probably in the low $800K; they’ve since dropped in value to around the mid-$600s.
Let me also note that (at least in the beginning of this post) I’m focusing solely on the salary and what it is used for, and not priorities and appearances. I’ll address those issues at the end of the post.
In any case, the article talks about CEOs that earn $500K, and looks at how they spend their money. One thing to note about such CEOs is that they do not typically live the life of leasure (as opposed, say, to some of our entertainers up in Bel Air and Beverly Hills). CEOs are on call 24/7; they do a significant amount of travel for business purposes, they are typically working across multiple time zones that increases their time on the work side vs. the family side. As part of the business of getting and keeping business is the people side, what we think of as “parties” may be networking opportunites to grow the business. That’s how things work at that strata. Everything is connections, and working them can help your corporation.
That said, the article notes that these CEOs aren’t necessarily saving their salaries: they are typically cash-flow zero at the end of the month due to mortgages, credit card bills, and other expenses. Some are unavoidable: large houses (which you tend to acquire, rightly or wrongly, as one moves up) have large mortgages and large property tax bills. They typically have large acreage which cannot be maintained by them personally (i.e., they employ gardening staff); they may have personal assistants to run errands they are unable to run (which is not the job of a secretary — remember, A Secretary Is Not A Toy). They often have failed marriages — meaning alimony obligations as well.
Other expenses noted in the article are items like private school, nannies, drivers, clothing costs, etc. Some of these, in my eyes, are justifyable for the purposes of making time more effective (drivers). Others compensate the family for the lost personal time (nannies). Yes, some are perks. But one thing to note is that if the money is spent, it is typically being spent in such a way that keeps others employed. This aspect of the trickle-down economy is a reasonable argument, and something we often forget when we think about these salaries. So each of these executives keeps a lot of people employed, and hopefully pays their share of taxes, employer taxes, sales taxes, property taxes, etc. These salaries help the economy, when you think about it.
Note that, regarding the above, I’m talking the generic CEO who is successfully running a successful corporation. What about a CEO who ran their company into the ground? What about a CEO who is having to downsize their company? This is where priorities and appearances come into play. Just as it may appear unethical to take a meal from a supplier (although it may not personally affect your ethics), it creates the appearance of wrong to provide significant bonuses above contractual salary when a company is cutting back. CEOs should at least appear to share the pain: if they are asking their employees to take cuts, they should take equivalent or slightly greater cuts to share the pain as a corporate family, for the corporate good. Certainly if government rescue money is involved, it should not go towards excessive bonuses (and there should be a clear distinction between bonuses and contractual weekly salary). Salary packages should be constructed, where appropriate, to have financial penalties for failure as well as incentives for success. But we also need to adjust based on the cost of living in areas, and to not use the President’s salary as a benchmark (for the president also gets a fair number of “free” perks: such as no mortgage, free food, free security, free drivers, etc.).
So, let’s not just focus on the number. Some successful executives deserve their salary and perks, and put it to good use in the community. But all should remember ethics overall, and be conscious over appearances and priorities over personal greed. Both failure and success should be shared proportionally.
[Carefully climbs down off the soapbox]