AP Pair Offended That Some CEOs Are Paid As Well As Elite Entertainers

May 26th, 2015 4:06 PM

Seldom does one see such an obvious betrayal of reporters' biased mindsets as the one found in the opening paragraph of an Associated Press report earlier today on CEO pay at major U.S. publicly-held companies.

According to the AP's Steve Rothwell and Ryan Nakashima, that entertainers, whose incomes are derived from leveraging special physical and artistic talents, deserve all the money they can get their hands on. But CEOs at major companies — well, not so much:

Media CEOs are the highest-paid American executives
Media industry CEOs are the highest-paid executives, annual study shows

They're not Hollywood stars, they're not TV personalities and they don't play in a rock band, but their pay packages are in the same league.

In other words, Hollywood stars, TV personalities, and successful members of rock bands can rake it in without the nation's leading wire service raising any objections. But let S&P 500 CEOs get a collective 1 percent raise — not kidding — and the AP will spill tons of ink and burn terabytes of bandwidth second-guessing their pay:

... One reason for the high level of pay in the industry is that its CEOs are dealing with well-paid individuals.

"The talent, the actors and directors and writers, they're being paid a lot of money," said Steven Kaplan, a professor of finance at the University of Chicago Booth School of Business. "In industries where the talent makes a lot of money, the CEO makes a lot of money as well."

Pay packages for CEOs overall grew for the fifth straight year in 2014, driven by a rising stock market that pushed up the value of executive stock awards. Median compensation for the heads of Standard & Poor's 500 companies rose to a record $10.6 million, up from $10.5 million the year before, according to the Equilar/AP pay study.

Peer pressure is another factor driving up executive compensation. The board members responsible for setting CEO pay typically consider what the heads of similar companies are making. If pay for one goes up, it will likely go up for others.

I'm not denying the existence of the peer-pressure angle, but it didn't seem to work very well overall last year. The $100,000 average increase the AP pair reported works out to 0.95 percent. That's below the 1.6 percent increase in average 2014 price levels over 2013 cited here, and barely above the 0.8 percent inflation seen between December 2013 and December 2014.

Certainly there's no call for shedding tears for the S&P 500's top dogs, and there are clearly examples of CEOs who have been paid very well while their companies have foundered or failed. But it's really an insult to imply, as Rothwell and Nakashima did, that they don't deserve their pay nearly as much as talented entertainers, who, though they mostly work very hard, nonetheless are, to paraphrase President Obama's bombast, winners of life's talent lottery.

CEOs are charged with looking out for the well-being of thousands of shareholders, employees and their families, and (to an extent) other stakeholders while complying with a plethora of government laws and regulations. When CEOs fail, thousands of people can be hurt. The harm done by a cancelled concert or a poorly-selling record album is relatively negligible. Thinking more positively, the wealth a stellar CEO's stewardship can create can amount to tens of billions of dollars, an accomplishment no entertainer who focuses only on his or her individual craft will ever be able to claim.

And while we're on the topic, a friend of mine who saw the AP item today reminded me that those complaining about "income inequality" never get around to applying the CEO-average worker differential they obsess over to entertainers — or, for that matter, sports stars. The differential between the pay of an entertainer or elite athlete and a stadium's parking attendants, ushers, grounds and concession personnel is far greater than the "205 times the average worker's wage" CEO-average worker differential that Rothwell and Nakashima cited in a later paragraph of their writeup.

One could also argue that entertainers' and athletes' earnings are significantly subsidized, at least in regards to live events, given that cities and counties have built many arenas and most of the nation's larger outdoor stadiums at taxpayers' expense.

Additionally, there is a limit on corporate salary deductions for income tax purposes for company officers. Those tax-law provisions exist for no other reason other than class envy. Of course, Rothwell and Nakashima didn't mention that those provisions don't apply to highly-compensated employees — like entertainers, TV personalities, and athletes — who aren't officers.

Cross-posted at BizzyBlog.com.