Editor’s note: WRAL TechWire reached out to veteran Raleigh tech and securities attorney Jim Verdonik for his analysis of the latest CEO vs. worker compensation data published by the ALF-CIO based on SEC filings. Verdonik is cofounder of Innovate Capital Law along with Benji Jones. His analysis follows.
RALEIGH – These numbers are taken from SEC filings by public companies. As a securities lawyer, I have spent many, many, many hours writing descriptions of executive compensation for proxy statements and prospectuses of public companies. My overall take is that for investors it is more useful to get information about what total executive team compensation is as percentage of revenue or profit than it is to know what any specific individual makes.
The most relevant investor question is: How much value is the management team creating for the amount of compensation the team is being paid.
The AFL/CIO created this list of executive compensation statistics for reasons other than helping investors make decisions. The numbers are interesting, but statistics are just the beginning point for forming an opinion or making a decision or making an argument. Statistics mean little by themselves. The same statistics are often used to justify directly opposing opinions.
American social commentator Mark Twain, said it better than me: “There are three kinds of lies: lies, damned lies, and statistics.”
Let me give you an example. One might conclude from the statistics you gave me that Lending Tree and Lab Corp are good companies because their CEO rations are low and VF Corp and Hanesbrands are bad because their CEO ratios are high.
But I ask this question: How many workers at VF and Hanes are qualified for the jobs at Lending Tree and Hanes?
Should we credit CEOs who only hire well educated workers?
What happens to the other workers who Lending Tree and Lab Corp don’t hire?
Where do they work?
How do they feed their families?
VF and Hanes are much bigger companies with many more workers. VF and Hanes also make things in factories. Lab Corp and Lending Tree are service companies.
So, I ask: Which is easier? Managing a business with thousands of workers that face global price competition? Or managing a service business with a much smaller and higher skilled workforce?
I don’t know the answers to these questions. All I know is that the Boards of Directors of all these companies made some decisions and most people don’t have the same set of facts that the Directors had when they made these compensation decisions.
I also know that managing companies on the rise in growing markets is difficult, but managing declining businesses with cutthroat competition is more difficult. Put another way: I’ve hired people and given people raises. I’ve also had to fire people. It a lot more fun to hire than to fire.
Of course, the AFL-CIO who published these statistics, is in the business of trying to increase wages. So, they use their statistics to buttress their arguments. No harm in that. We should just be aware that the numbers don’t speak for themselves. Interpreting the numbers takes a lot more information than this list provides.
There’s an old piece of advice for lawyers that sums up the compensation statistics issue: “If the facts are against you, argue the law. If the law is against you, argue the facts. If the law and the facts are against you, pound the table and yell like hell.” Creating lists is not arguing either law or facts. It’s the written equivalent of yelling and pounding.
On a personal note, I should mention that I am a former AFL-CIO member. They might help some people, but I wasn’t impressed with what the organization did for me while was a member. I also grew up in a union family. You can’t print in your publication what my mother thought of the union my father was forced to be in.