Ben Stein’s Blunder

Ben Stein’s column in The New York Times, February 12, says, “CEOs routinely take home hundreds of times what the average worker is paid, whether or not the company is doing well. The graph for the pay of CEOs is a vertical line in the last five years.”

These statements are wildly incorrect. Estimates of CEO pay in 2005 won’t be available until April. But two pair of professional critics of CEO pay have calculated that compensation of CEOs of the largest corporations fell by 48-54 percent from 2000 to 2003.

Thomas Piketty and Emmanuel Saez gathered one set of CEO pay from Forbes, by cherry-picking a revolving list of top 100. By that selective measure (which is not at all “average”) CEO pay fell from $40.4 million in 2000 to $18.5 million in 2003, or 54 percent.

The reason should be obvious: As much as 78 percent of elite CEO pay in the late 1990s came from exercising options granted in the early 1990s, while options granted at the peak of the boom were soon worth little or nothing as stock prices crashed from about March 2000 to March 2003.

Another set of estimates was assembled by Lucian Bebchuck and Yaniv Grinstein. For S&P 500 firms, they figure that CEO pay fell from $17.4 million in 2000 to $9.1 million in 2003, or 48 percent. Among small-cap firms, CEO pay never got much above $2 million, where it was in 2003. Among mid-cap firms, CEO pay fell from $5.1 million in 1999 to $4 million in 2003.

Any increase in CEO pay since 2003 needs to be put in the context of what happened before. CEOs in the Piketty-Saez elite 100 earned considerably less in 2003 than a different “top 100” did in 1996. The broader, more comparable Bebchuck-Grinstein list of 500 earned no more in 2003 than they did in 1997. In those 5 years the "trend" in CEO pay was much closer to horizonatal than vertical (albeit with a big spike in the middle), and CEO pay has been almost steadily down since 1998 among all but the biggest firms.

As for Ben's comment about CEO’s supposedly earning “hundreds of times” what the average worker is paid, “The State of Working America 2005” from the Economic Policy Institute estimates “the ratio of CEO to average worker pay” at 145 in 2002 and 185 in 2003. The further-left pamphlet “Executive Excess” fabricated a figure of 431, but did so by such devices as multiplying weekly wages of part-timers by 52 weeks and calling that average worker pay.

When it comes to writing about CEO pay, it appears perfectly acceptable to make totally false statements of fact so long as the accompanying rhetoric expresses a righteous sense of outrage. Personally, I find the absence of journalistic standards on this topic far more outrageous than anyone's income, even in Hollywood.