By Daniel Brouse, June 17, 2024
There is a prevailing myth or conspiracy theory that suggests hourly workers’ wages are negatively impacted by the high compensation packages of CEOs and other corporate executives. This myth can be debunked for several reasons:
1. Hourly Wages Are Not Suppressed by Executive Pay
In the current economy, the minimum wage has little to do with actual hourly wages, which are often higher. For example, in the Greater Philadelphia Region, the average hourly wages for various entry-level positions are as follows:
- Janitors: Approximately $17.26 per hour.
- Fast Food Workers: Around $15.45 per hour.
- Grocery Store Employees: This category includes various roles such as cashiers, stock clerks, and other support staff, averaging about $14-$16 per hour depending on specific job functions and experience.
These figures demonstrate that market conditions, not executive pay, dictate wage levels for hourly workers.
2. Hourly Wages Rising Faster Than Inflation
For the 12 months between May 2023 and May 2024, hourly wages rose faster than inflation, indicating that worker compensation is improving in real terms. This counters the narrative that executive pay stifles wage growth for the average worker.
3. Executive Compensation and Its Impact on Corporate Budgets
Much of what is termed as “excessive executive compensation” does not directly affect corporate budgets or worker compensation. Executives are often compensated with stock options provided by shareholders. This process, known as “share dilution,” involves issuing additional stock, which reduces the ownership proportion of current shareholders but does not directly take from corporate revenues.
Moreover, executive compensation through stock options can positively impact hourly wages and employment numbers. Stock options only gain value if the company grows, aligning executives’ interests with those of the company and its workers. Growth often leads to increased wages and employment as the company expands.
Case Study: Tesla Shareholder Suit Against Elon Musk
A prime example of high executive compensation can be seen in the Tesla shareholders’ suit against Elon Musk in Delaware. The court ruled that Tesla’s board had conflicts of interest and failed to properly disclose the compensation plan’s details. Despite these issues, an additional shareholder vote favored Musk’s pay package, showing confidence in his leadership. This decision came even amid slumping sales and a drop in stock price, indicating that shareholders believe in the long-term growth potential under Musk’s guidance.
In summary, the idea that high executive compensation negatively impacts hourly wages is a misconception. Market conditions and company growth drive wages, and executive compensation strategies often align the interests of executives with those of workers and the company.
References
ADDITIONAL RESOURCES:
Economic Facts on Immigration, Budget Deficits and Inflation
Economic Update: Inflation, Interest Rates, AI, Consumer Spending, Climate Change, and Fiscal Policy