Abigail Disney Is Right: 'Insane' CEO Compensation Can Have 'A Corrosive Effect On Society'
This article originally appeared on Forbes by Mark Murphy, Founder of Leadership IQ
In case you haven’t heard, Abigail Disney, granddaughter of Roy O. Disney (cofounder of The Walt Disney Company), recently went viral when she called Disney CEO Bob Iger’s $65.6 million compensation “insane” and said that this level of pay has “had a corrosive effect on society.”
Not only is the $65 million number shocking, but so, too, is its relative scale; a study says Iger’s compensation is 1,424 times the median employee pay.
This isn’t the first time that Abigail Disney has spoken out on astronomical CEO compensation. On a recent CNBC appearance, she uttered the highly quotable line, “Jesus Christ himself isn’t worth 500 times his median workers’ pay."
And lest anyone accuse her (or me) of being sacrilegious, remember that it was Jesus himself who, in Matthew 19:23-24, said, “Truly I tell you, it is hard for someone who is rich to enter the kingdom of heaven. Again I tell you, it is easier for a camel to go through the eye of a needle than for someone who is rich to enter the kingdom of God.”
The Disney CEO’s compensation is coming under intense scrutiny because there’s someone as fearless and influential as Abigail Disney willing to call attention to the issue. Plus, she’s sincerely and intensely motivated, especially when she notes that, "Anyone who contributes to the success of a profitable company and who works full-time to do so should not go hungry, should not ration insulin, and should not have to sleep in a car.”
But not every CEO has an Abigail Disney to call them out for astronomical (and perhaps unseemly) compensation. And Bob Iger is not the only CEO who makes hundreds or thousands of times more than their employees.
According to the Economic Policy Institute, from 1978 to 2013, CEO compensation, inflation-adjusted, increased 937%. That’s more than double stock market growth and much more than the 10% growth in a typical worker’s compensation over the same period. In 2013, average CEO pay was $24.8 million, and the CEO-to-worker compensation ratio was 510.7-to-1.
Is Abigail Disney correct that these kinds of multiples can have a corrosive impact? Yes, she is and here’s one reason why.
One of my employee engagement studies found that in 42% of companies, high performers are actually less engaged than low performers. In other words, your best people, those who drive your profit, revenue, etc., might feel less warmly about your company than your low performers.
How could that be? Well, think about what it’s really like to be a high performer in some companies. You’re out there busting your hump every day, closing deals, serving customers, delivering high quality, fixing others’ mistakes, flying coach, working late, etc.
And then you get your annual compensation review. In lots of companies, you might make a whopping 2% more than the worst employees on the team; so that’s pretty demoralizing. Then you see your CEO making 500 or 1,000 times more than you and you start to ask, "Was the CEO handling all those angry customer calls, and closing the deals, and delivering high quality?"
And beyond that, you might start to question your company’s sincerity when they hang posters that say, “People are our most important asset.” Because the shareholders, board and CEO just told you that one person is worth 500 times more than you.
Too many people are unaware that CEOs didn’t always make 500 times more than their employees. As David Leonhardt wrote in the New York Times:
“A half-century ago, a top automobile executive named George Romney—yes, Mitt’s father—turned down several big annual bonuses. He did so, he told his company’s board, because he believed that no executive should make more than $225,000 a year (which translates into almost $2 million today).”
And in a famous 2002 article, Nobel Laureate Paul Krugman wrote:
“In the 1960's, America's great corporations behaved more like socialist republics than like cutthroat capitalist enterprises, and top executives behaved more like public-spirited bureaucrats than like captains of industry. I'm not exaggerating. Consider the description of executive behavior offered by John Kenneth Galbraith in his 1967 book, ''The New Industrial State'': ''Management does not go out ruthlessly to reward itself -- a sound management is expected to exercise restraint.''
I would never argue that CEOs and executives aren’t important; they’re incredibly important. But I would offer two pieces of advice to CEOs who make hundreds or thousands of times more than their employees: First, employees hate insincerity. So don’t hang posters extolling their importance when your annual bonus communicates that the people on the frontlines are pretty insignificant. And second, if you’ve got employees that are struggling to pay rent or buy food, it’s a very bad look when their survival is your pocket change.
If people truly are a company’s most important asset, we might need to ask whether one person is really worth 500 times more than the others. Even the NBA, which can have some astronomical salaries, has less relative imbalance than corporate America. In the 2018 season, Lebron James’ salary with the Los Angeles Lakers was about $38 million. And the lowest-paid player on the team made about $700,000. So even though Lebron is arguably worth 500 times more than someone like Jemerrio Jones, Lebron only makes 54 times his lowest-paid teammate.