Archive for September, 2007|Monthly archive page

CEOs make in a day what workers do in a year

The typical CEO of a top U.S. corporation earns more in a single workday than the average American takes home in an entire year. And there’s no sign that the gap is getting narrower.

A new study by the Institute for Policy Studies and Boston-based group United for a Fair Economy found that the CEOs of the 500 largest U.S. companies took home an average of $10.8 million in total compensation in 2006.

That’s about 364 times that of the average American worker, who earned just $29,544 in the same period.

The top 386 CEOs also enjoyed perks worth an average of $438,342 in 2006. A minimum wage worker would need to work 36 years to earn as much as CEOs obtained just in perks last year, the study found.

It’s a similar story with pensions. CEOs retire with an average $10.1 million in their retirement plans. In contrast, barely more than a third of American households headed by an individual 65 or older held any type of retirement account in 2004 and those accounts that did exist averaged only $173,552 per household.

For those at the top of the 20 largest companies in the U.S, however, the rewards were even greater, averaging $36.4 million. This figure is three times the average of $12.5 million earned by the 20 highest-paid European CEOs.

In comparison, members of the U.S. executive branch of government averaged just $198,369 and generals in the U.S. military $178,542.

“Individuals who sit atop America’s business enterprises are capturing far more compensation for their labors than individual leaders in other fields who appear to hold the same exact leadership skill set,” the report argued.

Yet CEO pay pales in comparison to the sums earned by those in the most lucrative jobs in the U.S. The average compensation for the mangers of the country’s top 20 hedge funds was an eye-watering $655.5 million in 2006, with four having earned more than $1 billion in the last year alone.

Sam Pizzigati of the Institute for Policy Studies said that these huge pay gaps could cause real problems because they drained leadership talent out of the government and not-for-profit sectors.

“The soaring pay gap between business executives and elected leaders in government essentially makes corruption inevitable,” he added..

“With such huge windfalls at stake, business leaders have a powerful incentive to manipulate the political decisions that affect corporate earnings.”

Sarah Anderson, lead author of the study, added that despite changes to the reporting regulations that have made it difficult to compare this year’s CEO-worker wage gap to previous years, it is clear that the overall trend has not changed.

In 1965, U.S chief executives in major companies earned 24 times more than an average worker. In 1980, the ratio was 40-1. The gap then surged in the 1990s and hit 300 at the end of the recovery in 2000.

“We certainly haven’t seen any real retreat on CEO pay,” Anderson said. “Even companies that are heading toward crisis are continuing to pay huge sums.”

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Service with a Very Big Smile

The bigger the employee’s smile, the happier the customer. That’s the conclusion of new research from Bowling Green State and Penn State universities.

With the help of trained observers, Patricia Barger and Alicia Grandey followed 173 encounters between customers and employees in coffee shops, scoring the employees’ “smile strength” on a scale from “absent” to “maximal” (which features exposed teeth) at various points during the transaction. The researchers then intercepted the customers and asked them about their service experience. Indeed, the bigger the employee’s smile, the more likely customers were to view that person as competent and the encounter—averaging just two minutes—as satisfying.

But requiring employees to smile can backfire, these and other researchers warn. Studies have shown that forcing workers to act friendly when they don’t feel friendly can lead to job burnout and depression. Forced smiles also tend to look phony, and ample research suggests that customers know, and don’t appreciate, a fake when they see one.

If managers want employees to deliver service with a smile, they can do better than simply mandate it. They could create an environment that encourages genuine smiles and, Barger and Grandey suggest, consider including “a measure of positive emotional expressivity in their employee selection system”—which, loosely translated, means “hire happy people.”

Harvard Business Review